What Is Slippage in Crypto Trading?

What Is Slippage?

Quick Definition:

Slippage is the difference between the expected price of a trade and the actual price at which the trade is executed. It typically occurs with market orders in volatile or low-liquidity conditions.

Imagine you want to buy Bitcoin at $50,000, but by the time your order executes, you end up paying $50,200. That $200 difference is slippage. While it might seem small, slippage can significantly impact your trading profits, especially with larger orders or in volatile markets.

Simple Example:

Expected Trade:

• Buy 1 BTC at $50,000
• Total cost: $50,000
• Market order placed

Actual Execution:

• Buy 1 BTC at $50,200
• Total cost: $50,200
• Slippage: $200 (0.4%)

Types of Slippage

Negative Slippage

You pay more than expected (buying) or receive less than expected (selling)

Example: Want to buy at $50,000, actually pay $50,300

Positive Slippage

You pay less than expected (buying) or receive more than expected (selling)

Example: Want to buy at $50,000, actually pay $49,800

Important Note:

While positive slippage is beneficial, negative slippage is much more common, especially in volatile crypto markets. Most traders focus on minimizing negative slippage.

What Causes Slippage?

1. Low Liquidity

When there aren't enough buy/sell orders at your desired price level, your order must be filled at less favorable prices.

Example: Trying to buy $100,000 worth of a small-cap altcoin with limited trading volume.

2. High Volatility

Rapid price movements between order placement and execution can cause significant slippage.

Example: Bitcoin price swings $1,000 in seconds during major news events.

3. Large Order Size

Big orders can't be filled at a single price and must "walk the book" through multiple price levels.

Example: A $1 million Bitcoin purchase consuming multiple order book levels.

4. Network Congestion

Delays in order processing due to high network traffic or exchange overload.

Example: Exchange lag during peak trading hours or market crashes.

How to Calculate Slippage

Slippage Formula:

Slippage % = ((Executed Price - Expected Price) / Expected Price) × 100

Buy Order Example:

• Expected price: $50,000
• Executed price: $50,500
• Slippage: (50,500 - 50,000) / 50,000 × 100
• Result: 1% slippage

Sell Order Example:

• Expected price: $50,000
• Executed price: $49,600
• Slippage: (49,600 - 50,000) / 50,000 × 100
• Result: -0.8% slippage

Dollar Impact Calculation:

Trade Size: $10,000 | Slippage: 1% | Cost: $100

Trade Size: $100,000 | Slippage: 1% | Cost: $1,000

Even small percentage slippage can result in significant dollar amounts on large trades.

How to Minimize Slippage

Order Type Strategies

Use Limit Orders
Set maximum acceptable price to avoid slippage
Split Large Orders
Break big trades into smaller chunks
Use Stop-Limit Orders
Combine stop triggers with price limits

Timing Strategies

Trade During High Liquidity
Avoid low-volume periods and weekends
Avoid Major News Events
High volatility increases slippage risk
Monitor Order Books
Check depth before placing large orders

Advanced Techniques:

TWAP Orders

Time-Weighted Average Price spreads orders over time

VWAP Orders

Volume-Weighted Average Price matches historical patterns

Iceberg Orders

Hide large order size to prevent market impact

Exchange and Platform Considerations

Choose High-Liquidity Exchanges

Major Exchanges (Lower Slippage):

• Binance - High volume, deep order books
• Coinbase Pro - Institutional liquidity
• Kraken - Strong EUR/USD pairs
• FTX - Advanced order types

Factors to Consider:

• 24-hour trading volume
• Order book depth
• Spread between bid/ask
• Available order types

Slippage Tolerance Settings

Many platforms allow you to set maximum slippage tolerance to protect against excessive costs.

Conservative: 0.1-0.5%

For stable, high-liquidity pairs

Moderate: 0.5-2%

For most crypto trading

Aggressive: 2-5%

For volatile or low-liquidity tokens

Real-World Slippage Examples

Scenario 1: Large Bitcoin Purchase

Trade: $500,000 Bitcoin market buy during moderate volatility

Without Slippage Protection:

• Expected: 10 BTC at $50,000
• Actual: 9.85 BTC at $50,761
• Loss: $3,805 (0.76%)

With Limit Orders:

• Split into 10 orders of $50k each
• Set limits at $50,200 max
• Saved: ~$2,500

Scenario 2: Altcoin Trading

Trade: $50,000 purchase of mid-cap altcoin with limited liquidity

Market Order Result:

• Expected price: $10.00
• Average execution: $10.85
• Slippage: 8.5% ($4,250)

Better Strategy:

• Use multiple smaller limit orders
• Spread over several hours/days
• Potential savings: 60-80%

Slippage Management Best Practices

Before Trading:

Check order book depth and spread
Assess current market volatility
Set realistic slippage tolerance
Choose appropriate order type

During Trading:

Monitor execution in real-time
Be ready to cancel if conditions change
Track partial fills on large orders
Adjust strategy based on market response

What You'll Learn