What Is Slippage
Slippage is the difference between a trade's expected or requested price and the price at which the trade is effectively executed. It typically occurs in markets experiencing high volatility or low liquidity.
The slippage percentage quantifies a given asset's price fluctuation between the order placement and execution. Crypto markets can be highly volatile, with significant price fluctuations in short periods, which could be prone to price slippage.
What factors can cause slippage in crypto markets?
Slippage usually occurs due to two main reasons:
1. Low or lack of liquidity on an exchange
2. High Volatility
How can I minimize exposure to slippage?
1. Use limit orders instead of market orders
A market order is to buy or sell a stock at the market's current, best-available price. It aims to ensure an order's execution but offers no guarantee to fill at a specified price. Price fluctuation occurring after you place the order can affect its execution price.
A limit order, however, will only fill at a requested price. This means you will trade your asset only at your requested price rather than a price set by the market. Note that this doesn't guarantee your whole order will fill at your requested price, and only a partial amount may be executed.
2. Trade on exchanges with high liquidity and during low volatility periods
As slippage commonly happens when volatility is high and liquidity is low, trading on exchanges with low liquidity may increase your exposure to potential slippage. Using high-volume exchanges with deeper liquidity may help mitigate that risk. Likewise, trading during low volatility periods will reduce the likelihood of unfulfilled/partially filled orders at the initial set price.
3. Adjust your slippage tolerance
Slippage tolerance is the maximum percentage price difference you're willing to accept before your order stops filling or is canceled. Exchanges often integrate this feature as a way for traders to hedge themselves against significant price changes in the market when they place orders.
Slippage tolerances features are typically available in decentralized exchanges (DEX), where slippage occurs more frequently.
If you are using the web platform, navigate to the top right corner and click the settings icon.
Within the trade section, you will find the option for 'slippage tolerance.'
Adjust the slippage tolerance as needed and confirm the changes.
If you are using the app, access the trading “pair settings” by clicking on the top right corner.
On the next page, you will find the 'slippage tolerance' option.
Adjust the slippage tolerance according to your preferences and confirm the changes.
4. Slice large orders into smaller ones
Large orders are more prone to slippage risks given the typically increased latency of their execution and their need to absorb more liquidity. Instead of placing a large bulk order, spreading its execution over time and across exchanges gradually can effectively cope with slippage risks.
