Introduction


Slippage in crypto trading happens when the price you expect to pay or receive for a trade differs from the actual price when the transaction is completed. This is common in volatile markets or with lower liquidity, especially on decentralised exchanges (DEXs).

What is Slippage?


Slippage is the difference between the expected price of a trade and the actual price it executes at. It often happens due to market volatility, low liquidity, or slow transaction speeds, especially in the crypto space.

How Slippage Affects Crypto Trading

  • Market Volatility: Cryptocurrencies are known for being highly volatile. By the time your trade processes, the price could have changed, affecting your final transaction.
  • Low Liquidity: If you’re trading a token with low liquidity, your trade might push the market price up before it completes.
  • Order Execution Speed: DEXs can take longer to process trades, increasing the chance of slippage, as prices may move before the transaction finalises.

Example of Slippage
Let’s say you want to buy $1,000 worth of Ethereum when it's priced at $2,000 per ETH, expecting 0.5 ETH. However, by the time your transaction goes through, the price rises to $2,050. You might end up with less ETH than planned for your $1,000.

Managing Slippage on DEXs

  • Slippage Tolerance Setting: Most DEXs allow you to set a slippage tolerance, which limits how much the price can move against you before the trade is cancelled.
    For example, if you set a 2% tolerance, the trade will only go through if the price doesn’t move more than 2%. Otherwise, it’s cancelled.
  • Splitting Orders: Instead of placing a large order, you can split it into smaller trades to reduce market impact.
    For example, rather than buying 10 ETH at once, you might buy 2 ETH in smaller transactions to reduce slippage.
  • Using Limit Orders: A limit order lets you specify the maximum price you’re willing to pay (or the minimum to sell for).
    For example, you set a limit order to buy ETH at $2,000 or less. If the price goes higher, the order won’t go through until the price drops to your target.
  • Timing Your Trades: Try to avoid trading during periods of high volatility, such as during major announcements or events that cause price fluctuations.
  • Understanding Liquidity: Always check liquidity before trading. Higher liquidity generally means less slippage, as there are more buyers and sellers to stabilise the price.
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Photo by June Gathercole / Unsplash

Conclusion


Slippage is an unavoidable risk in crypto trading, especially on DEXs. However, by understanding how it works and managing your trades carefully—using strategies like setting slippage tolerance, splitting orders, or using limit orders—you can minimise its impact. This ensures your trading experience is more predictable and helps you avoid unnecessary costs.

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