What Is Slippage?

Defining and explaining slippage.

Updated over a week ago

Slippage refers to the difference between the expected or requested price of a trade and the actual executed price. This commonly occurs in markets experiencing high volatility or low liquidity, such as in crypto markets. Slippage percentage quantifies the price fluctuation of an asset between order placement and execution.

What are the causes of slippage in crypto markets?

Slippage in crypto markets usually occurs due to two main reasons:

1. Low or lack of liquidity on an exchange

If an exchange has low liquidity and you place a large market buy order that can't be filled at the price you want, some of your order will be matched with sell orders above your price, resulting in negative slippage.

2. High volatility

Slippage can arise when the market price shifts post-order placement, which happens quickly in volatile markets, even within seconds. This can also provide opportunities for high-frequency traders to frontrun the order and increase slippage.

How can slippage exposure be minimized?

To minimize slippage exposure, the following strategies can be used:

1. Use limit orders instead of market orders

Limit orders only fill at a requested price, so your asset will be traded only at your requested price instead of a price set by the market.

2. Slice large orders into smaller ones

Spreading the execution of large orders over time can effectively cope with slippage risks.

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