What does the term "execution costs" refer to in the context of trading?

The term "execution costs" in the context of trading specifically relates to the costs incurred during the execution of trades. This includes various elements such as slippage, which occurs when the actual execution price of a trade differs from the expected price. Slippage can happen due to market volatility or liquidity issues, leading to a less favorable price than anticipated.

Other components of execution costs might include the bid-ask spread, which is the difference between the buying price and the selling price of a security. Effective execution means minimizing these costs to enhance overall trading performance and investment returns. Therefore, the answer accurately captures the essence of what execution costs entail within the trading environment.