What is slippage in crypto? Slippage is the difference between what you expected to pay for a cryptocurrency and what you actually paid. This can be caused by a number of factors, including liquidity, market volatility, and spreads. In this blog post, we will discuss what slippage is, how to avoid it, and some examples of slippage in the crypto world.
What Is Crypto Slippage and How to Calculate It
Slippage is what happens when a trader tries to execute an order on the market at one price but ends up paying more than expected or less because of recent trades executed by other traders.
For example, if there are two buyers and three sellers in what we call “market depth,” then this means that none of what’s offered by traders can be filled immediately. As a result, the transaction takes place at some price higher than what is being asked for on one side of market depth and lower than what is being bid on the other side.
When slippage happens, it affects how much money investors make off their trades because they don’t get what they expected when placing an order.
For example, if you want to buy 10 Bitcoins but there are only 8 Bitcoins available on the market at the price you desire, your order will “slip” and fill at a worse price than you were hoping for! In order to get 10 Bitcoins, you will have to buy eight at the price you want and 2 Bitcoins at a higher price.
What Is the Slippage Formula?
The slippage crypto formula is as follows:
( (Bid Price – Ask Price) / Quantity ) * 100%
Or, in other words, the percentage difference between what you expected to pay and what you actually paid for. For example, if you bid $100 for a Bitcoin but the transaction filled at $105, your slippage would be -$105 / $100 * 100% = +0.05%.
Types of Slippage: Positive and Negative
Slippage can be positive or negative. Positive slippage is what happens when you buy or sell at a better price than what you expected, and negative slippage happens when your order fills at worse prices than what was bid for on one side of market depth (buyers) and asked for on the other side (sellers).
For instance, positive slippage would occur when you bid $100 and get filled at $101. On the other hand, negative slippage happens when what you expected to pay for was lower than what actually took place because of recent trades executed by others.
How to Avoid Slippage in Trading Crypto?
The US has about 27 million crypto owners and they try hard to steer away from slippage. In order to evade slippage when trading, what you need is a good strategy — like stop losses or limit orders — and an understanding of how different factors affect your trade’s execution.
Limit orders are placed when you want to buy or sell a security at a specific price or better. If the order can’t be filled immediately, it will become what’s called a “limit order book” entry, which means that your order is good for as long as the stock remains at or below the limit price that you set.
In addition, try to avoid using market makers and OTC desks, which have high slippage rates. Instead, focus on finding brokers with low spreads like eToro or Gemini so as not to be affected by what happens around them too much.
Examples of Slippage and Different Cryptos
What is slippage in trading cryptocurrencies can best be There have been several examples of slippage in crypto and the results are very interesting. Recently, the global price of bitcoin slipped over the weekend, with CoinGecko reporting a 16.6 percent decline in 24 hours to $47,164.46. Bitcoin fell sharply in early Saturday trading, dropping around $10,000 an hour to a low of $42,000 before rebounding to $47,000.
It’s important to note, however, that slippage isn’t always negative — sometimes it can be positive too! One example was when Ethereum (ETH) rallied from $250 all the way down before bouncing back up again towards what would have been an expected price point based on what happened with Bitcoin’s recent correction.
Similarly, Litecoin (LTC) skyrocketed from $40 to $80 and then plummeted back down before regaining momentum and reaching a more favorable price level.
By the way, the last bitcoin is going to be mined in 2140, so you should have enough time to master the trading skills.
Conclusion
No matter what your risk-reward ratio may be, it’s important that you understand the concept of slippage and how different factors can affect it. What is slippage, in the end? In a nutshell, it is the situation when you have to buy crypto at a higher or lower price than you had expected, most likely due to crypto market violations.
Therefore, cryptocurrency slippage can have both a positive and negative outcome for you.
FAQs
What is slippage tolerance in crypto?
Slippage tolerance is what happens when a trader tries to execute an order on the market at one price but ends up paying more than expected or less because of recent trades executed by other traders. It can be very frustrating for many crypto investors because they think it means that the trading platform didn’t execute what was expected.
Is high slippage good?
It depends on what side of the coin you’re on. If you’re buying, then it’s probably better to have high slippage (because a higher price means more profit); if however, you are selling, low slippage could mean less money in your pocket at the end of the day! And what about when trading crypto? Well, this can go either way, but as a general rule, you want to try and find a broker with low spreads in order to minimize the effects that slippage can have on your trade.
What happens if slippage is too low?
If there are not enough buyers on the market to fill an order, then what will happen is that slippage becomes positive. This means it’s actually good news for sellers because they can sell at a higher price than what was initially expected — which makes up for what they lost due to slippage being negative earlier on.
How do you calculate slippage?
To calculate slippage, you need to take into account what the bid price is and what the asking price was at that time on a particular trading platform. Then subtract both values from each other (bid minus ask) which gives us what we call “slippage”. If it’s positive then there are more buyers than sellers. The slippage formula goes like this: ( (Bid Price – Ask Price) / Quantity ) * 100%.
What does slippage mean regarding cryptocurrencies?
Slippage occurs when you’re trading crypto on exchanges like Coinbase Pro, Binance, and so on. What happens is that trade orders aren’t filled at what they should be and instead end up getting executed much higher than what was initially expected due to lack of liquidity in the market right now (which means there are more buyers than sellers).
What is slippage in crypto is more or less similar to the definition of slippage in general, except that we are talking about cryptocurrencies and their (highly) volatile market.
