That Price Shock Every Trader Knows: What is Slippage?

If you've already clicked on “buy” and the price that closed was different from what was on the screen, welcome to the slippage club. This phenomenon affects not only those trading cryptocurrencies but also forex traders and other markets. Let's understand why this happens and how not to fall into this trap.

The Root of the Problem: The Spread and the Lack of Liquidity

Before talking about slippage, you need to know its parent: the bid-ask spread (bid-ask spread). This spread is simply the difference between the highest price a buyer is willing to offer and the lowest price a seller will accept. When liquidity is low, this gap becomes huge.

Bitcoin, for example, has tiny spreads precisely because there are hundreds of orders being executed simultaneously. In assets with less volume, the gap between buy and sell can be alarming. It is exactly in this vacuum that slippage thrives.

In Practice: How Slippage Steals from Your Pocket

Imagine that you want to buy $100 in a cryptocurrency using a market order. It seemed simple, right? But when the order goes to the order book, there is not enough liquidity at that price. So the platform starts to fill your order at increasingly higher price levels. The result? You pay $102 or even $105 for the same amount you thought you were buying for $100.

This deviation between the expected price and the actual price is called slippage. It may seem small, but in large trades or volatile markets, the bleed is real. Forex traders deal with the same problem when trading pairs with low liquidity.

When Slippage Works in Your Favor

Not everything is bad. If the price moves in your favor during the execution of the order, you benefit from positive slippage. It's rare, but it happens. That's why many decentralized exchanges and DeFi platforms allow you to set a specific slippage tolerance, such as 0.5% or 0.1%.

The question is: how to calibrate this tolerance? Too rigid and your transaction fails or takes forever. Too loose and you end up buying at an undesired peak. It's a delicate balance.

Strategies To Avoid Being Swallowed By Slippage

Split your large orders: instead of putting in $100,000 all at once, breaking it into several smaller trades reduces the impact on the market and on your wallet.

Choose your tools wisely: limit orders are slower, but ensure that you only buy or sell at the price you set ( or better ). Market orders are fast, but come with the risk of slippage.

Keep an eye on liquidity: before trading, check if there is enough volume. Ghost markets are traps waiting to happen.

Set your slippage tolerance: in most DEX and decentralized exchanges, you can set this parameter. Do this before confirming the transaction.

Why This Really Matters

Understanding slippage and the buy-sell spread is not pedantry. It is the difference between making informed decisions or losing money silently. Especially in DeFi and decentralized exchanges, where volatility and liquidity are two unpredictable beasts, knowledge is protection. Whether trading cryptocurrencies, forex, or any asset, slippage is always lurking. Knowing your enemy is the first step to defeating him.