Slippage

What Is Slippage?

Slippage is the difference between the expected price of an order and the price when the order actually executes. The slippage percentage shows how much the price for a specific asset has moved. Due to the volatility of cryptocurrency, the price of an asset can fluctuate often depending on trade volume and activity.

Positive & Negative

There are two types of slippages: positive and negative. If the actual executed price is lower than the expected price for a buy order, it is considered positive slippage since it gives traders a better rate than they originally intended. If the actual executed price is higher than the expected price for a buy order, it is considered negative slippage since it gives traders a less favorable rate than they originally tried to execute. The opposite is true for sell orders.

Too much slippage can cost frequent traders a lot of money. In order to reduce, if not eliminate slippage, traders can avoid executing market orders and opt to execute limit orders instead since these types of orders don’t settle for an unfavorable price.

On the other hand, setting your slippage tolerance too low (normally you have to set a percentage of 0.1% to 5%), may mean that your transaction never executes and you miss cashing in (or out) during a big price jump or drop. Set it too high and you may become the victim of frontrunning.

Slippage can quickly become a frustratingly slippery slope for the less experienced trader, so it’s important to understand the volatility of both the cryptocurrency and the trading platform you’re dealing with.