Slippage

A Slippage is the difference between the expected price of a cryptocurrency trade and the actual price at which the trade executes. This occurs due to market volatility or low liquidity. Traders often see slippage in decentralized exchanges (DEXes) like Uniswap.

Slippage works through price changes between trade quotation and execution. In automated market makers (AMMs), liquidity pools determine prices via algorithms. A large trade shifts the pool balance, altering the price. For example, swapping 10 ETH for a low-liquidity token might execute at a worse rate than quoted. Users set slippage tolerance—a percentage threshold—to allow or reject trades exceeding it.

Slippage matters because it impacts trade costs and profitability. High volatility amplifies it, eroding gains or causing losses. In crypto, low-liquidity pairs suffer most. It ties to security risks like front-running or sandwich attacks, where bots exploit pending trades for profit. Traders monitor it to avoid unexpected outcomes.

Key characteristics include positive slippage (better-than-expected price) and negative slippage (worse price). Slippage tolerance, often 0.5-5%, helps manage it. Types vary by venue: order book slippage from thin books, AMM slippage from pool depth. To minimize, trade high-liquidity pairs or split large orders.