What is Slippage in Crypto and how to minimize its impact

Cryptocurrency is known for its unpredictable nature. The prices can change within seconds because the market works 24/7 and is powered by global demand. This constant movement creates opportunities and risks for traders. One common overlooked risk is slippage. This concept is the difference between the expected price for a trade and the actual price. 

While is common in any financial market, it regularly occurs in crypto because of high volatility, and sometimes, low volatility. Therefore, the actual outcome of your trade may not match your expectations, leading to unexpected small gains or losses. To understand slippage in crypto and practical ways to minimize its effects, this post is for you.

Key Takeaways

• Slippage is the difference between expected and actual prices in crypto
• It is usually caused by low liquidity, large trades, quick price changes, and order types.
• Slippage is more common in crypto because the market runs 24/7.
• Market orders are quicker but experience more slippage than limit orders

Understanding slippage in crypto

Slippage occurs when the price you expect for a trade differs from the price you actually get later than the trade. For instance, assume you want to purchase at $60,000. later than your order is processed, the price may have moved up to $60,150. The extra $150 difference is slippage. This situation can also happen when tradeing, as you can get less than you expect. 

Slippage is common in crypto because the market moves quick and doesn’t always have enough tradeers and purchaviewrs at the precise price you want. Sometimes, it may work in your favour, but most times, people are more concerned about getting worse prices than their expectations.

Factors that cause slippage in crypto trading

Slippage doesn’t happen by chance. Some conditions are responsible for making it more likely. Here are the main factors responsible: 

1. Sharp price movements

The crypto market is available 24/7 and responds rapidly to social media trends, news, or large trades. If the price of a coin moved sharply within a few seconds, the price you wanted may no longer be available. For instance, if BTC rises suddenly because of positive news, many traders will rush to purchase. At the time your order is processed, its price may be higher.

2. fragile market depth

This concept means the number of purchase and trade orders is lined up at diverse price levels. Strong market depth means many orders are available at many price points, keeping the prices stable. fragile depth implies fewer orders, allowing the price to move a lot when a single trade is made. Strong depth leads to less slippage in crypto, and fragile depth causes more slippage. 

3. Large trade sizes

When you attempt to purchase or trade a large amount of crypto at once, it might be hard to view enough people willing to match your price. Massive trade sizes can cause your order to spill over into other price levels, increasing slippage. You can reduce this risk by breaking a large trade into smaller ones. 

4. Choice of order method

Sometimes, how you place your order can affect slippage. There are two main order types, namely market orders and limit orders. Market order means you’re asking the platform to purchase or trade a coin instantly at the best available price. However, the price you get may not be what you saw seconds or minutes ago. 

In comparison, a limit order means giving a specific price you’re willing to purchase or trade at. Therefore, your trade will be executed if the market reaches your chosen price. A limit order assists you avoid slippage, but your trade may not happen if the market doesn’t touch your price. 

5. sluggish processing and network delays 

Slippage in crypto may not come from the market itself, but due from delays in how trades are handled. If too many people are trading on the identical platform at the identical time, system overload can happen. This strain sluggishs down how quick orders are matched, and when your order is processed, the price may have changed. Network delays can come especially when trading on decentralized platforms, and the network gets busy. While you wait for your transaction to be confirmed, the coin’s price can change. 

How to reduce slippage in crypto trading

If you’re a crypto trader, you may have experienced at diverse times. While it is common and unavoidable, there are smart ways to reduce its impact on your trades.

1. Prioritize limit orders over market orders

Market orders are quicker, but they leave you exposed to slippage in crypto because the system completes your trade at the next available price. Limit orders give you control by allowing you to set the price you want. Your trade will go through if the market matches that price. 

2. Trade cryptos with high liquidity

If a coin has high , it means enough people are trading at diverse prices, enabling your order to be filled smoothly. BTC, ETH and other popular coins mostly have deep markets, meaning less slippage. Smaller coins with fewer traders have more risk, because a small order can cause a price shift.

3. Divide large trades into smaller parts

If a large order is placed, you may end up moving the market against yourself, especially if the coins have fragileer demand. Instead, split large trades into smaller parts and complete them step by step. This strategy assists reduce the pressure on the market and keeps your average price closer to your target. 

4. Trade during busy market hours

Unlike other financial markets, crypto has no official opening and closing hours. However, trading activity isn’t always the identical 24/7. At some time of the day, more traders are active. This busy period is usually when large markets like the U.S. and Europe overlap. More purchaviewrs and tradeers are available during such hours, making it easier to complete your trades at your preferred price. 

Conclusion: Staying ahead of slippage in crypto trading

Slippage can’t be avoided completely; hence, understanding why it happens and how it can be managed makes a large difference. Since every trader’s situation is diverse, it is significant to do your research before trading. Take time to understand the coin, market conditions, and the platform you’re using.