Slippage refers to the difference between the expected trade price (order price) and the actual execution price.
- Commonly occurs in highly volatile markets or when liquidity is insufficient.
- In the cryptocurrency market, due to sharp short-term price fluctuations, slippage happens more frequently.
Slippage Percentage
Used to quantify the percentage difference between the order price and the actual execution price.
- Negative Slippage: The actual price is worse than expected.
- Positive Slippage: The actual price is better than expected (less common).
Main Causes of Slippage
- Insufficient Liquidity
When market depth is lacking, large market orders cannot be fully executed at the expected price.
Example: Buying 100 BTC at a market price of $20,000 each.
- 50 BTC filled at $20,000
- 25 BTC filled at $20,001
- 25 BTC filled at $20,002
Final average execution price = $20,000.75 → Negative slippage of $0.75.
- High Market Volatility
When prices change quickly between order placement and execution, the execution price may deviate from the expected price.
Example:
- At order placement: Bid/Ask = $19,990.50 / $20,000
- High-frequency trading and volatility push prices to: $20,000.5 / $20,001
- Final execution price: $20,001
Result: Each BTC costs $1 more; for 100 BTC, the total negative slippage is $100.
How to Reduce Slippage
- Choose trading pairs and times with high liquidity.
- Prefer limit orders over market orders.
- Avoid trading during major news events or periods of extreme market volatility.
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