Slippage
Slippage Key Points
- Slippage is a common concept in both traditional and cryptocurrency markets.
- It refers to the difference between the expected price of a trade and the price at which the trade is executed.
- Slippage can occur during volatile market conditions or when a large order is placed.
- It can result in either positive or negative outcomes for the trader.
- Understanding and managing slippage is essential for successful trading strategies.
Slippage Definition
In the world of cryptocurrency and blockchain, slippage refers to the difference between the expected price of a trade and the price at which the trade is actually executed. It’s a common phenomenon that traders encounter when executing large orders or trading in a volatile market.
What is Slippage?
Slippage is a term used in trading to describe when a trader receives a different trade execution price than they expected.
This can happen when the market price changes between the time a trade order is placed and when it is filled.
Slippage is a major concern for day traders and high-frequency traders who rely on precise execution of their trades.
Who Does Slippage Affect?
Slippage affects everyone who participates in trading, whether in traditional or cryptocurrency markets.
Day traders and high-frequency traders are particularly affected due to the large number of trades they execute.
Institutional investors executing large orders may also experience significant slippage.
When Does Slippage Occur?
Slippage can occur anytime but is most common during periods of high volatility when market prices can change rapidly.
It can also occur when a large order is placed that exceeds the current available volume at the best bid or ask price.
Where Does Slippage Occur?
Slippage can occur in any market, including cryptocurrencies, stocks, forex, commodities, and others.
It happens on all trading platforms and exchanges, as it is a result of natural market dynamics.
Why Does Slippage Happen?
Slippage happens because of the time delay between when a trade order is placed and when it’s executed.
During this delay, the market price can change, leading to a different execution price.
High market volatility and large orders can exacerbate slippage.
How Can Slippage be Managed?
Traders can manage slippage by using limit orders, which only execute at a specific price or better.
They can also avoid trading during high volatility periods or breaking large orders into smaller ones.
However, it’s important to note that slippage can’t be entirely avoided, and it’s a part of trading that everyone must account for.