Slippage is not random bad luck; it is a measurable cost with identifiable drivers. Mechanism: Slippage comes from order size relative to available liquidity, timing, venue choice and information leakage. Each driver can be managed. Why it matters: That matters because slippage that looks small on one trade compounds into a significant return drag over hundreds of executions. $$ Implementation\ Shortfall = Decision\ Price - Execution\ Price $$ Plain English: Implementation shortfall measures the gap between the price you decided to trade at and the price you actually got. Market translation: A market order on a mid-cap stock during low-volume hours can cost 15-30 bps more than a patient limit order during the liquidity window. Failure mode: The mistake is accepting slippage as the cost of doing business without analyzing which part is preventable. Review question: Write down the state variable you would monitor first if this thesis started to drift. The point is not to memorize the label. The point is to know what variable is actually doing the work.