What is Slippage?
Let's find out Slippage meaning, definition in crypto, what is Slippage, and all other detailed facts.
Slippage occurs when cryptocurrency traders submit a purchase or sell order on an exchange, expecting the order to be completed at the precise price they specified, but this does not happen.
In other words, slippage is the gap between an order's predicted price and the price at which the order actually performs. The slippage percentage indicates how much the price of a certain asset has changed. The price of an asset might vary frequently because of the volatility of cryptocurrencies, based on transaction volume and movement.
A big amount of slippage might result in traders regularly losing a lot of money. To minimize this and decrease slippage, traders should avoid fulfilling market requests and instead strive to complete limit orders because these orders do not finalize for a disadvantageous price.
However, if you fix your slippage allowance too low, your transaction may never be completed. In turn, you will miss the opportunity to cash out during a large price surge or decline. On the other hand, if you set it too high, you may become a subject of frontrunning.
Slippage takes place when traders are forced to accept a different price than what they originally asked owing to a price fluctuation between the time the order (for Bitcoin, as an example) enters the market and the implementation of a deal.
This may happen in any market, including forex and stocks. Due to the high levels of price fluctuations, it is more common and much harsher in crypto markets (particularly on decentralized exchanges like Uniswap). Furthermore, similar pitfalls shared by the large majority of cryptocurrencies, like poor volume and liquidity, may lead to slippage.
It doesn’t take long until slippage transforms into a frustrating slippery slope for those that have less knowledge and experience as traders. Keeping that in mind, it is crucial to have the needed information about the volatility of the trading platform as well as the particular cryptocurrency.
Overall, there are two sorts of slippages:
- Positive. On the condition that the official fulfilled price is lower than the anticipated price for a buy order, it is considered positive slippage since it gives traders a better rate than they initially expected;
- Negative. On the condition that the official completed price is higher than the anticipated price for a buy order, it is considered a negative slippage because it provides traders a less favorable rate than they initially tried to accomplish.