⁉ What is slippage and when does it occur?!
Slippage in cryptocurrencies is defined as the difference between the expected trading price and the actual price at which the trade is executed. This occurs when cryptocurrency prices change rapidly between the moment the trading order is sent and the moment it is executed.
📉 Causes of slippage:
- Low liquidity: when the liquidity of the cryptocurrency is low, there are not enough buyers or sellers at a certain price.
- High volatility: The cryptocurrency market is known for its significant price volatility. During times of important news or rapid movements, the price may change in a fraction of a second, leading to the order being executed at a price different from the displayed price.
💰 Types of slippage:
- Negative slippage: occurs when the execution price is worse than the expected price.
- Positive slippage: occurs when the execution price is better than the expected price.
- Large market orders: when using a market order to execute a large trade, this trade may consume all available buy or sell orders at the current price, causing the order to 'slip' to higher or lower price levels.
💡 How to reduce slippage?
✔ Use Limit orders instead of market orders.
✔ Avoid trading during times of high market volatility.
✔ Monitor order volume before executing the trade 👀.
