What is slippage in crypto? (A beginner’s guide)
One of the first and most surprising things that newbie traders discover when trading crypto is the phenomenon of slippage. Slippage is the difference between the expected price of a trade and the price at which it is actually executes. This occurrence is by no means unique crypto, as slippage occurs in traditional financial markets as well. However, it’s especially common in crypto trading due to high volatility and the uneven, often thin liquidity across exchanges, liquidity pools and trading pairs.
Slippage can affect both buyers and sellers, often resulting in worse trade outcomes than expected. For beginner traders, it acts as one of the most profound sources of profit leaks. Thus, for any crypto trader — and for a newbie in particular — understanding why slippage takes place and learning how to manage it is a key prerequisite for achieving successful trading outcomes.
Key Takeaways:
Slippage in crypto trading is the difference between the expected price of a trade and the actual price at which it executes.
Slippage occurs due to low liquidity, rapid price fluctuations in volatile market conditions and/or execution delays.
To manage slippage, you can use limit and stop-loss orders, employ automated trading tools, leverage slippage tolerance settings on decentralized exchanges and trade high-volume cryptos on established, high-liquidity centralized exchanges.
What is slippage?
Slippage in crypto trading is the difference between the price you expect when placing a trade and the price at which the trade is actually executed. It shows up as a gap between what you see and what you get — a gap that can work against you or, more rarely, in your favor.
For example, say you want to buy one Bitcoin (BTC), and the current price is 115,000 Tether (USDT). You confirm the trade expecting that price. But instead, the order gets filled at 120,000 USDT. The slippage in this case is 5,000 USDT, the difference between the expected price and the actual executed price.
Slippage happens because crypto prices can move quickly, and the price shown on the screen isn’t guaranteed. It can also occur when there isn’t enough supply or demand at the price you expect. If there aren’t enough sellers offering BTC at 115,000 USDT, the system automatically fills your order using higher-priced offers.
The result is that your order clears, but at a worse price. This is negative slippage. Positive slippage can also take place when you get a better price than expected. However, positive slippage is much less common than the negative variety.
Slippage is more likely to occur during sudden market movements, or when trading asset pairs with low liquidity. While the causes vary, the outcome is the same: you don’t get the price you thought you would. For all traders, especially beginners, slippage can end up being a serious drain on profitability. Thus, regardless of your experience level, understanding slippage and the ways to minimize it are essential for successful trading. Few crypto traders can boast profitability without reining in the beast of slippage.
What causes slippage?
Slippage in crypto may result from a handful of factors that affect the way prices move and the speed with which trades get executed.
High volatility Crypto markets are known for rapid, large and unexpected price changes. When prices move sharply within seconds, the price shown when you place a trade can change by the time it completes. For example, if BTC’s price jumps from 117,000 USDT to 119,000 USDT while your order is processing, the executed trade price will reflect that new level, resulting in slippage. Volatility and market fluctuations speed up price changes, making it more difficult to lock in your expected rate.
Low liquidity Liquidity refers to how easily a crypto asset can be bought or sold without causing a big change in its price. When liquidity is low, there aren’t enough buy or sell orders near the current price to fill a large trade all at once. The order “eats through” multiple price levels in the order book, pushing the execution price up or down. For instance, if you try to buy a large amount of a low-volume token, you may end up paying higher prices for each chunk, increasing slippage. Thin liquidity is common with smaller altcoins, newer tokens and trading pairs with limited activity.
Slow on-chain transaction processing Delays in executing and confirming trades can cause slippage, too. This is especially noticeable on decentralized exchanges (DEXs) that operate on blockchains like Ethereum (ETH), as network congestion frequently slows down transaction processing. By the time your trade confirms on-chain, the market price may have shifted, leading to slippage.
Order size relative to market depth Even in reasonably liquid markets, placing an order larger than the available volume at the best price levels causes slippage. Market depth refers to the amount of buy or sell orders at each price point. Large orders sweep through several price levels to fill, moving the average execution price away from the expected price.
Trading bots (The sandwich attack)
Sometimes, slippage might result from activity by trading bots, which many DeFi platforms are awash with. A common cause of slippage caused by bots is a sandwich attack.
A sandwich attack occurs when a bot detects your pending trade while it’s still in the unconfirmed pool of transactions on the blockchain and places its own orders immediately before and after yours. The goal is to manipulate the price and pocket the difference. Such an attack typically forces you to buy at a higher price (or sell at a lower one) while the attacker profits from the artificial price movement you caused.
Price Impact vs. Slippage
When discussing slippage, it’s essential to distinguish it from another common DeFi phenomenon that distorts prices — price impact.
Price impact is the immediate change in a token's price caused solely by your trade affect such as other traders' actions, market volatility or bots, price impact is the mathematical result of your own transaction. Price impact is particularly noticeable when you trade against a small, low-liquidity pool by placing an order that is large relative to the pool’s size.
Positive slippage vs. negative slippage
In most cases, slippage is negative, meaning that you pay more than expected. However, positive slippage can also occur. For example, if BTC is priced at 117,000 USDT and you place a buy order, but the price drops to 116,000 USDT before your order fills, you’ll pay less than you originally expected.
Although positive slippage benefits you, it occurs less often than negative slippage. One key reason for this phenomenon is linked to the way bid-ask spreads work in a market. When you place a market order, you're always "crossing the spread," i.e., buying at the higher ask price or selling at the lower bid price. Since the midpoint between bid and ask is often considered the "fair" price, you're systematically getting a worse price than that midpoint every time you trade. In volatile markets such as crypto, the spreads tend to be wider, further tilting the scale toward more negative slippage instances.
As a result, negative slippage outcomes dominate positive cases. Counting on positive slippage isn’t just risky but is actually a futile strategy that should never be part of your trading plan.
Slippage: CEXs vs. DEXs
Slippage occurs on both centralized exchanges (CEXs) and DEXs, but the key causes are different between the two platform types. On CEXs, slippage takes place due primarily to order book depth and market volatility. Large market orders can consume liquidity at several price levels, pushing the average execution price away from what you expected. Rapid price changes during order execution also contribute to slippage on centralized platforms.
On DEXs, the actual causes of slippage may be quite different. DEX platforms use either order books or automated market makers (AMMs), whereby trades are executed against liquidity pools containing token pairs. Order book DEXs often behave similarly to CEXs, so slippage arises when orders fill across multiple price levels.
In contrast, AMM-based DEXs calculate prices based on token ratios in liquidity pools, so large trades may shift these ratios and move prices against the trader, causing higher slippage. AMM liquidity pools are often smaller and less deep than CEX order books, increasing slippage risk, particularly when trading low-liquidity pairs.
Another major factor raising slippage on DEXs is that of transaction confirmation times. On slower blockchains, delays can cause price changes between the time a trade is submitted and the time that it’s confirmed.
In general, you can expect more substantial slippage rates on DEXs, particularly AMM-based ones, than on CEXs. However, the good news is that many DEXs allow users to set slippage tolerance, which is the maximum percentage price difference a trader is willing to accept. If prices move beyond this specified maximum before the trade completes, the transaction reverts instead of executing at a worse price. This feature helps prevent unexpected losses in times of high market volatility or blockchain processing bottlenecks.
How to calculate crypto slippage
To calculate slippage, take the difference between the actual execution price and the expected price. For example, if you place a market order to buy BTC for 100,000 USDT, but due to price movements or liquidity issues the trade executes at 105,000 USDT, the slippage is 5,000 USDT. This is the actual value lost due to slippage.
Slippage is usually expressed as a percentage of the expected price. In this case, 5,000 (the difference between the actual and expected price) is 5% of 100,000 (the original expected price). So, the slippage rate = (105,000 − 100,000)/100,000 = 0.05, or 5%. Using percentages allows you to easily compare the relative impact of slippage across different trades, assets and order sizes.
How to avoid slippage in crypto trading
There are several ways to minimize or even avoid slippage in crypto trading. One of the most effective is to use limit orders. A limit order lets you specify a target price, and your order will be executed only if the asset reaches that price or better. This virtually eliminates the probability of negative slippage, since the trade will only execute at your preferred price or better. However, the downside is that your order may not get filled if the market never reaches that price.
Another tool to minimize slippage is the stop-loss order. This type of order triggers a market sell when the price drops to a predefined level. While it doesn’t entirely eliminate the risk of slippage, it can reduce its impact by cutting losses before prices move further against you.
Automated trading strategies, including bots, can also help reduce slippage. Bots can monitor prices and execute trades faster than a human can, reducing the time between trade decision and execution.
Another way to reduce or even eliminate slippage is by using intent-based trading platforms. Intent-based trading lets you specify the exact outcome you want, such as the minimum amount of tokens or the specific price you'll accept. Automated programs called solvers then compete to find the best way to fulfill your request. This reduces or removes slippage because your trade only executes if a solver can meet your desired price.
Using DEXs that support slippage tolerance settings is another effective method. These platforms allow you to set a maximum acceptable price deviation, preventing the trade from going through if the slippage rate exceeds that level.
Finally, sticking to large, high-liquidity CEXs and trading only high-volume asset pairs can significantly reduce slippage. The deeper the liquidity and the tighter the spreads, the lower the chance of your trade consuming multiple price levels or being delayed during execution.
Combining these methods helps limit exposure to slippage across both CEXs and DEXs, and in the case of limit orders completely eliminates the occurrences of negative slippage.
Closing thoughts
Slippage is an unavoidable part of crypto trading, especially in volatile or low-liquidity markets. Understanding how and why it occurs on different types of platforms is key to managing its impact. By using limit and stop-loss orders, trading on high-liquidity platforms, setting slippage tolerance on DEXs and leveraging automated strategies, you can minimize the effect of slippage on your trading outcomes.
For beginners in particular, it might be worth sticking to large, high-liquidity, established CEX platforms and focusing on major cryptos with ample depth, e.g., BTC, ETH, SOL and other top coins with significant volumes. As you gain more experience trading crypto, you can then venture into environments and assets where slippages might get considerably higher, using the techniques above to effectively reduce their rates and the impact on your bottom line.
#LearnWithBybit