Slippage is the difference between the price you intended to trade at and the price you actually got filled at. Ask for a fill at $1.00 and get $1.03, and you have paid three cents of slippage - on every contract, on every trade. It sounds trivial. Over hundreds of trades, it is the difference between an edge and a slow bleed.
Why it happens
Prices move between the moment you decide and the moment your order reaches the book. In thin or fast markets, the bid-ask spread is wide and the top of the book is shallow, so a market order eats through several price levels to fill. The faster the tape and the larger your size relative to available liquidity, the more you slip.
What makes it worse
Slippage spikes around news, at the open and close, and in low-volume names. Chasing a breakout with a market order is the classic way to hand the market free money - everyone else is chasing the same move, and the book thins out just as you need it. Options make it worse still: spreads are wider and depth is thinner than the underlying.
A backtest that ignores slippage is a fantasy. The market charges you to get in and to get out.
Controlling it
Slippage is a cost you manage, not eliminate. Trading liquid instruments, avoiding the thinnest minutes, and using limits where the trade allows all shrink it. Systems that route intelligently - testing passive fills when the tape is calm and paying up only when a move can't be missed - treat execution as part of the edge, not an afterthought. The strategies that survive are the ones that budget for slippage honestly and still come out ahead.