For any asset manager, as for managed futures traders, every fraction of a percent counts. Strategies are honed, backtested, and stress-tested across decades of data. Execution is automated. Models are precise. Yet, when the theoretical meets the real world, performance often gets quietly eaten away by something far less glamorous: slippage.

Slippage is the silent drag on performance that many investors underestimate and few managers can afford to ignore. It doesn’t appear on strategy fact sheets or in marketing decks yet over time, it can be the difference between outperformance and mediocrity.

What Slippage Really Is

At its core, slippage is simple: it’s the difference between the intended price of a trade and the actual price at which it’s executed.

Imagine a CTA’s system signals a long position in crude oil futures at $78.20. By the time the trade reaches the market, it’s filled at $78.45. That 25-cent difference, about 0.32%, is slippage. On a single contract, that’s not much. But apply that cost across a large portfolio trading dozens of futures markets, hundreds of times per year, and it starts to eat into returns quickly.

For many CTAs, especially those operating at high frequency or with tight profit margins, slippage of just 0.2% to 0.5% per trade could reduce net annual performance by 1–3 percentage points. And for strategies chasing a net annual return of 6–8%, that’s a substantial hit. It´s enough to move a manager from the top quartile to the middle of the pack.

Why Slippage Happens

Slippage occurs for a number of reasons, and not all are within a manager’s control. Markets move, often fast. A model can generate a trade signal at 10:01:00, but by the time the order hits the market, the price may have shifted. In highly liquid markets like U.S. Treasuries or S&P futures, the difference might be minimal. But in thinner contracts, say, Nordic electricity futures or a niche agricultural market a single institutional-size order could move the price significantly.

Another factor is order type. Market orders guarantee execution but give up price control. Limit orders protect on price but may not get filled at all, especially in fast-moving environments. The more urgent the trade, the more likely it is to suffer from price slippage.

Then there’s market structure. During times of volatility, or around economic data releases and central bank decisions, bid-ask spreads widen, liquidity disappears, and slippage spikes. In March 2020, at the onset of the COVID-19 market crash, many CTAs reported slippage rates 2–3x above normal, turning profitable signals into flat or even negative trades.

What It Means for Managed Futures Managers

For systematic strategies, especially short-term trend followers or breakout traders, slippage distorts the logic of the model itself. Trades that backtest well on clean historical data start behaving differently in live markets. Entry levels slip. Stop-losses hit faster. Gains shrink. Patrik Säfvenblad, CIO at Volt Capital Management notes: “Without actual trading, it is impossible to know how a specific trading strategy trades in the market.”

The real damage isn’t just the cost of bad fills. It’s the erosion of signal integrity. A manager may see their strategy succeed in simulation, only to watch it underperform in reality , not because the model is wrong, but because execution failed to keep pace with the model’s intent.

Over the long term, persistent slippage can create a performance wedge between gross and net returns. For a manager generating 10% gross returns annually, even a consistent 1.5% slippage cost, which is not unusual in medium-volatility environments, drops that figure to 8.5%. Add in management fees, and the investor may see something closer to 6%, all from what was theoretically a high-performing strategy.

Can Slippage Be Avoided?

No, not entirely. But it can be managed, and skilled managers know how.

One of the most effective weapons against slippage is technology. Low-latency systems, smart order routing, and co-location near exchange servers allow orders to be executed as close to signal generation as possible. Managers who use adaptive order types and execution algorithms can minimize their market footprint, especially when trading size in less liquid contracts. Säfvenblad adds: “Over the last few years we have gradually reduced our use of limit orders in favour of time weighted orders (TWAP).”

Another key is broker and service provider selection. Not all execution partners are created equal. High-touch prime brokers with deep market access and proven execution quality can make a measurable difference. For instance, access to multiple liquidity venues or internal crossing networks can improve fill prices by a few basis points which, in the CTA world, is significant. Säfvenblad agrees, saying: “Good brokers provide good execution, but are also partners that often give us great ideas for how to further optimize our execution.”

Some managers also build pre-trade analytics into their process, allowing them to model expected slippage under current market conditions before they even place the order. In other words, they make execution part of the strategy itself rather than just a back-office function.

Managers operating in these environments and many CTAs do must be especially vigilant.

When Slippage Strikes Hardest

Slippage isn’t a constant, it tends to surge in very specific market environments. Slippage often roars loudest in volatile markets, where rapid price movement increases fill risk and reduces the effectiveness of passive orders. Similarly, instruments with low liquidity, such as emerging market assets or certain commodity futures, can see spreads widen quickly, magnifying execution costs. Slippage can also spike during after-hours or outside U.S. trading windows, when trading volume thins out and market makers pull back. Crowded trades are another common trigger: when many managers act on similar signals at once, the resulting scramble to enter or exit positions can drive up costs for everyone involved. Finally, roll periods, those windows when managers shift positions from one contract month to the next, often lead to concentrated trading activity that strains execution quality. Safvenblad warns: “On an unanticipated low liquidity day, you have to be able to reduce or cancel your target trade.”

A Hidden Cost That Deserves the Spotlight

While slippage is often invisible in marketing decks and performance charts, its effect is anything but. For CTAs and managed futures managers, it can quietly erode alpha, distort strategy logic, and widen the gap between theoretical models and real-world outcomes.

While it can’t be eliminated entirely, slippage can be managed through smart technology, thoughtful execution, disciplined infrastructure, and the right partners. In fact, a manager’s ability to control slippage is increasingly a marker of operational excellence. “Access to live trading data is critical for any slippage analysis, ” Safvenblad adds.

Ultimately, in the lifecycle of a trade, execution is where strategy meets the market. And slippage can be seen as one measure of how cleanly that transition happens. For managers who take it seriously, slippage is not just a cost, it can become a competitive edge. For those who don’t, it’s a slow leak that can sink performance before they even see it coming.

Title Picture created using ChatGPT