Explain How Price Impact Is Related to Slippage in a Low-Liquidity Derivative Market

In a low-liquidity derivative market, price impact is the direct cause of slippage. Price impact refers to the degree to which a trade moves the market price against the trader.

Since derivative contracts often have limited liquidity, a large order consumes the available quotes quickly, forcing the trade to be filled at progressively worse prices further down the order book. This difference between the expected and executed price is the slippage.