The Brief Explanation Of Slippage In The Crypto Market

Slippage is a routine issue in crypto trading. It refers to the phenomenon when trade orders don’t consistently execute at the desired price. Various factors, such as lack of liquidity or price volatility, can cause this.

Traders often trade with prearranged prices, aiming to execute their orders at a specific price. However, when slippage occurs, traders are forced to accept a price other than the one they requested. 

Slippages can be positive or negative. Negative slippage results in a lower price for your product than you originally bought, while with positive slippage, your order is executed at a lower price than the one you requested initially, which is advantageous for you. 

Current price volatility and a lack of liquidity are the main causes of slippages in the crypto market. Price instability, volatile asset values, and factors like demand and supply, market sentiment, market players’ enthusiasm, and government restrictions can impact the price of crypto assets. Low market liquidity makes certain cryptocurrencies vulnerable to slippages, as there are few buyers and sellers when a token has limited liquidity. 

The less liquid the market, the less likely there is to be significant price slippage. 

Although slippage can become a substantial issue for the trader, it is possible to control it, for example, by establishing a slippage tolerance (ST) threshold. 

The ST is the amount an order may move to the trader’s disadvantage before the order is cancelled. By establishing a slippage tolerance, you agree to a price swing of that %, either up or down.

Setting an ST percent value allows you to manage your vulnerability to slippage. 

The order will be fulfilled if the ST is very high, even if the price swings considerably. However, this makes your trade vulnerable to sandwich attacks and front-running assaults. 

If the ST is too low, the transaction may be reversed if the price fluctuates substantially.