Why Does Your Crypto Trade Cost More Than Expected? Understanding Slippage

When you hit execute on a market order, you probably expect to get filled at the price displayed on your screen. But what if your actual purchase price ends up significantly higher? Welcome to slippage—one of the most common (and frustrating) surprises in crypto trading.

What Actually Causes Slippage

Slippage happens when the price you finally pay differs from the price you anticipated. The culprit? Usually it’s one of two things: not enough liquidity in the order book to fill your entire order, or sudden market volatility that swings prices before your transaction settles. Think of it like placing a massive buy order during a flash market move—the market simply doesn’t have enough sellers at your expected price level, so your order gets partially filled at higher prices.

The Bid-Ask Spread Connection

To grasp why slippage occurs, you need to understand bid-ask spread first. This spread is the gap between what buyers are willing to pay (the bid) and what sellers demand (the ask). In highly liquid markets like Bitcoin, this spread stays tight because tons of trading activity keeps prices compressed. But in lower-liquidity altcoin pairs? That gap widens, and slippage becomes your enemy.

Real-World Scenario

Imagine you place a $100,000 market order on a relatively illiquid trading pair. The first portion fills at your expected price, but as your order consumes available liquidity, subsequent portions execute at progressively higher prices. Your average entry price might end up $102,000—that $2,000 difference is your slippage loss.

Slippage Can Work in Your Favor (Sometimes)

Here’s the silver lining: slippage doesn’t always hurt. If the market is moving fast in your favor during execution, positive slippage can occur—you get a better price than anticipated. This is why many exchanges, especially decentralized protocols and DeFi platforms, let you set a slippage tolerance level (like 0.5% or 1%). But be careful: set it too low and your transaction might fail; set it too high and you risk massive price deviation.

Strategies to Minimize Slippage Damage

Break up large orders: Instead of one massive market order, split it into multiple smaller ones. This reduces the immediate impact on the order book.

Use limit orders instead: Yes, they’re slower than market orders, but they guarantee you only execute at your specified price or better—eliminating slippage entirely.

Watch liquidity conditions: Always check order book depth before trading. Low-liquidity markets practically guarantee slippage, so you might want to avoid them or size down your position.

Set appropriate tolerance levels: On decentralized exchanges and DeFi platforms, dial in your slippage tolerance carefully. It’s a crucial safety parameter that protects you from extreme price deviations.

Why This Matters for Your Trading

Understanding slippage separates casual traders from seasoned ones. Whether you’re trading on centralized exchanges or experimenting with decentralized platforms, slippage can silently eat into your profits. By recognizing how bid-ask spread and market conditions create slippage, you can make smarter order decisions and protect your capital.