If you’ve just started trading or investing in cryptocurrencies, you might have come across the term “slippage.” But what exactly does it mean, and why should you care? In this article, we’ll break down what slippage is, why it happens, how it can affect your trades, and how to minimize it.
What Is Slippage in Crypto?
Slippage in crypto refers to the difference between the expected price of a trade and the actual price at which the trade is executed. It often happens during market volatility or when there’s low liquidity in the trading pair you’re using.
Example:
You want to buy 1 Bitcoin at $60,000, but by the time your order is executed, the price rises to $60,300. That $300 difference is positive slippage (you paid more than expected). If the price drops instead, that’s negative slippage (you paid less than expected).
Why Does Slippage Happen?
There are several reasons slippage occurs in crypto trading:
- Market Volatility: Crypto prices can change in seconds. If the market is moving quickly, your order may not execute at the price you saw.
- Low Liquidity: If there aren’t enough buyers or sellers at your desired price, your trade may fill at the next available price.
- Large Trade Sizes: Bigger orders may not get filled all at once, especially in low-volume markets, leading to slippage as parts of the order are filled at different prices.
Types of Slippage
- Positive Slippage: You get a better price than expected.
- Negative Slippage: You get a worse price than expected.
- No Slippage: The order is filled exactly at your expected price (ideal but rare during volatile markets).
How to Minimize Slippage in Crypto Trading
Here are a few tips to help reduce the impact of slippage:
- Use Limit Orders Instead of Market Orders. A limit order lets you set the maximum (or minimum) price you’re willing to buy or sell at. It won’t execute unless that price is met.
- Trade During High Liquidity Hours. Trading when more people are active—such as during the overlap of U.S. and European market hours—can help reduce slippage.
- Avoid Trading During Major News Events. Big announcements or events often cause price spikes and dips, increasing the chance of slippage.
- Break Up Large Trades. Splitting a big order into smaller chunks can help it get filled closer to your desired price.
- Check the Slippage Tolerance on DeFi Platforms. Many decentralized exchanges (DEXs) like Uniswap let you adjust your slippage tolerance. Set it too high, and you might get a bad deal. Set it too low, and your order might not go through.
Final Thoughts
Slippage is a common part of crypto trading, especially in volatile or illiquid markets. Understanding how it works and how to manage it can help protect your investments and improve your trading strategy.
By using the right tools and techniques—like limit orders and careful timing—you can reduce your exposure to slippage and make smarter, more informed trades.
