What exactly is slippage and what should you do the next time it happens?
This guide helps you protect your funds and minimize exposure to slippage.
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00:00 What is slippage
Slippage is what happens when you have to settle for a price that is different from what you initially requested, due to a price movement.
Let’s clarify that.
Slippage is the difference between the price you intended to pay for a trade and the final price you paid. Let’s just say the price ‘slips’ off your hand.
Mind you, slippage is not a bait-and-switch trick. It happens because of high volatility, extreme demand, and can also be a sign of a significantly unstable asset class.
02:14 Why is slippage so common in crypto trades?
Slippage occurs in all trading markets but is more common in crypto markets. This is because of the extreme price volatility and drastic price fluctuations.
Low liquidity can also lead to higher slippage which is the reason larger orders seem to experience increased slippage. It happens a lot with market orders.
When placing limit orders, your orders execute at or higher than the limit price. But when it comes to market orders, you only get your orders executed at the price the market dictates.
02:48 How to use the slippage tolerance setting?
Most exchanges allow you to change the Slippage Tolerance and Price Impact settings.
Using Slippage Tolerance, you will be able to set the maximum % of price movement that you want to accept.
03:39 Positive vs. negative slippage
Slippage may sound like having a bad experience but it actually goes both ways. You have a positive or negative slippage.
04:22 How to control slippage when trading crypto
There are controls and strategies you can implement to minimize the impact of slippage. The main thing you need to know is how to set your slippage tolerance.
You will find a slippage tolerance control in most crypto brokers. As an investor, you can set the slippage level that you are willing to tolerate either positive or negative.
Then the broker will fill your orders within the tolerance you set. If the price tolerance or liquidity rises above the threshold, the order won’t be filled.
Most investors like to set the tolerance at 0.10% or lower to keep themselves from price fluctuations on any trading day.
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