BTC

$64094.746

-1.03%

ETH

$3152.72

-0.38%

BNB

$603.268

-2.05%

XRP

$0.529

-0.25%

Glossary

Slippage

November 21, 2023 - Around 2 mins mins to read

Understanding Slippage

Slippage is the term used to describe the situation where cryptocurrency traders anticipate their buy or sell orders to be carried out at a particular price, but instead end up with a different price due to movements in the market. This occurrence, known as slippage, can happen in various markets, such as forex and stocks. However, it is more prevalent and severe in the crypto market, particularly on decentralized exchanges like Uniswap, because of the high levels of price volatility. Additionally, factors like low volume and liquidity of altcoins can contribute to slippage.

There are two types of slippage: positive and negative. Positive slippage occurs when the executed price is lower than the expected price for a buy order, providing traders with a better rate than they initially intended. Conversely, negative slippage occurs when the executed price is higher than the expected price for a buy order, resulting in a less favorable rate. The same applies to sell orders.

Excessive slippage can result in significant financial losses for frequent traders. To minimize or eliminate slippage, traders can avoid market orders and instead utilize limit orders, which enable them to specify the desired price range for execution.

However, setting the slippage tolerance too low may hinder the execution of transactions during significant price movements. Conversely, setting it too high can make traders susceptible to frontrunning.

Slippage can pose a challenging issue for inexperienced traders, underscoring the importance of comprehending the volatility of both the cryptocurrency and the trading platform being utilized.

Avatar of Coincu

Author

Coincu

Glossary

Slippage

Understanding Slippage

Slippage is the term used to describe the situation where cryptocurrency traders anticipate their buy or sell orders to be carried out at a particular price, but instead end up with a different price due to movements in the market. This occurrence, known as slippage, can happen in various markets, such as forex and stocks. However, it is more prevalent and severe in the crypto market, particularly on decentralized exchanges like Uniswap, because of the high levels of price volatility. Additionally, factors like low volume and liquidity of altcoins can contribute to slippage.

There are two types of slippage: positive and negative. Positive slippage occurs when the executed price is lower than the expected price for a buy order, providing traders with a better rate than they initially intended. Conversely, negative slippage occurs when the executed price is higher than the expected price for a buy order, resulting in a less favorable rate. The same applies to sell orders.

Excessive slippage can result in significant financial losses for frequent traders. To minimize or eliminate slippage, traders can avoid market orders and instead utilize limit orders, which enable them to specify the desired price range for execution.

However, setting the slippage tolerance too low may hinder the execution of transactions during significant price movements. Conversely, setting it too high can make traders susceptible to frontrunning.

Slippage can pose a challenging issue for inexperienced traders, underscoring the importance of comprehending the volatility of both the cryptocurrency and the trading platform being utilized.

Visited 55 times, 2 visit(s) today

Leave a Reply