Pandayield 101 — What is the slippage in trading?
The slippage is the difference between placing an order and expecting a price versus the actual price when the order is executed.
When does a slippage happen?
Essentially there are two factors for slippage to happen.
- An important change in the bid or ask spread when an order is placed and filled
- Insufficient order book volume to support the orders
What are the types of slippage?
Slippage doesn’t necessarily mean that the trader will lose money even if slippage is a risk. In fact, slippage can even result in gaining for the trader.
Negative slippage
When the executed price is higher than the expected price, it will result in a negative slippage as the rate won’t favor the trader.
Positive slippage
When the executed price is lower than the expected price, it will result in a positive slippage as the rate favors the trader.
However, positive slippage doesn’t mean that the trader will gain pips from it. The positive slippage could also mean that there is a loss reduction.
Where does slippage occur?
Slippage can affect every market, in forex, stocks, crypto, etc. Note that in crypto market, it’s worse due to the high levels of volatility. In a split of a second, the rate can increase or decrease with a critical %.
How to mitigate slippage?
As mentioned earlier, slippage appears on platforms with low liquidity on assets and a low volume of users. Consequently, when there is an important order, the slippage will be significant. To avoid that, always use platforms with an important amount of liquidity (like Binance).
If you intend to buy a large amount of a crypto, you should consider fragmenting the buying session. It means that instead of buying a large amount at once you could place few smaller trades.
Also, it would help if you trade with popular pairs as it means better liquidity.
Try to avoid trading during a high volatility period, such as when there is important market-moving news.
On Pandayield.com you can set a slippage tolerance. It means that the transaction will revert if the price changes unfavorably by more than the set percentage. Moreover, you can set a timeframe where the transaction will revert if it is pending longer than the time set.
Slippage can’t be totally avoided, it can only be mitigated.
Pandayield 101 is a series of educative articles produced by Pandayield.com to guide newcomers into DeFi and Yield Farming universe.
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