Slippage Definition
Slippage refers to the difference between the expected price of a trade and the price at which the trade is executed. It’s a common occurrence in the world of cryptocurrency trading, especially during periods of high volatility.
Slippage Key Points
- Slippage often occurs when the market is experiencing significant fluctuations, leading to a difference in expected and actual trade prices.
- It can be both positive (resulting in a better final price) and negative (worse final price), depending on market movements.
- Traders often aim to minimize slippage to ensure they are getting the best possible price for their trades.
What is Slippage?
When it comes to trading, particularly in volatile markets like cryptocurrencies, the price you see at the moment of deciding to make a trade may not always be the price you get. Slippage, as it’s known, is the discrepancy between these two amounts: the expected price of a trade versus the actual price at which the trade is completed.
Why Does Slippage Occur?
The occurrence of slippage is usually attributed to market volatility. When the market is unstable or unusually active, prices can change rapidly and thus the order price at the time of execution might be different from when you initiated the trade. In addition, the size of order and liquidity of the market can also influence the degree of slippage.
Where Does Slippage Happen?
Slippage can happen in all types of markets including but not limited to stocks, forex, and especially, in the world of cryptocurrency due to the characteristic volatility of crypto markets.
Who Does Slippage Affect?
Slippage directly affects traders. A large negative slippage can potentially result in less profits or even losses for traders. However, it’s important to note that sometimes slippage can be positive and can result in a better price than originally expected.
When Does Slippage Happen?
Slippage usually occurs during periods of high volatility. For example, when there is a major news event that affects the market, there might be a sudden surge or drop in prices, causing trades to be executed at prices different than expected.
How Can Slippage Be Managed?
Traders often use limit orders to manage slippage, as these type of orders set a maximum or minimum price at which they are willing to buy or sell. Utilizing trading strategies that account for market volatility and considering the liquidity of the asset before placing a large order also can help in minimizing potential slippage.
