If you have ever traded crypto and felt like you did not get the price you wanted, you are not alone. That small gap between what you thought you would get and what you actually got is called slippage. While it might seem like a minor technicality, slippage can quietly drain your profits or increase your losses, especially if you trade often.
This guide presents a clear explanation of what slippage really is and why it happens in crypto trading. Whether you are trading on a centralized exchange or swapping tokens in DeFi, I will show you practical steps to reduce it.
KEY TAKEAWAYS:
- Slippage is the difference between the price you expect to get when placing a trade and the actual price you get when the trade is executed.
- Slippage happens in crypto because of high volatility, low liquidity, and network congestion.
- The types of slippages include positive, negative, and tolerable slippages.
- You can reduce your slippage by setting a reasonable slippage tolerance, breaking large trades into smaller ones, and using limit orders on CEXs.
What Is Slippage in Crypto Trading?
Slippage is the difference between the price you expect to get when placing a trade and the actual price you get when the trade is executed. Say you’re trying to buy ETH at $2,500, and that’s the price you see on your screen. You confirm the trade. But when the transaction goes through, you end up buying it at $2,515. That $15 difference is a slippage and the result of price movement between the time you placed the order and the time it was fulfilled.
Sometimes the difference is small, maybe a few cents or a dollar. But in volatile markets, low-liquidity tokens, or during network congestion, slippage can be painfully large. In this case, it eats into your profits or causes you to buy or sell at way less favorable prices.
Why Slippage Happens in Crypto
Slippage exists in all financial markets, but it is especially common in crypto for the following reasons:
- High volatility: Crypto markets move really fast, and prices can swing dramatically in seconds. So if you’re trading a coin or token and its price shifts between the time you clicked “Buy” and the time your transaction gets processed, you’ll likely experience slippage.
- Low liquidity: Liquidity is about how easily you can buy or sell an asset without affecting its price. If you’re trading a token that doesn’t have a lot of buyers or sellers (low liquidity), even a small order can cause a big price impact.
- Automated market maker (AMM) mechanics: If you’re using decentralized exchanges (DEXs) like Uniswap, PancakeSwap, or SushiSwap, you’re trading through AMMs. These use algorithms to determine price based on supply and demand in a liquidity pool. Large trades shift the ratio in the pool and change the price as you’re trading, leading to slippage.
- Network congestion: In DeFi, your transaction isn’t instant. In fact, it waits in the blockchain’s transaction pool until it is mined or confirmed. If the network is congested or your gas fee is low, that delay can mean your trade gets processed at a different price than expected.
Read Also – The Importance of Liquidity in Cryptocurrency Markets
Types of Slippage
Here are the main types of slippage you should know about:
- Positive slippage: Sometimes the price moves in your favor before your trade executes. For example, if you’re buying and the price drops, you’ll get more tokens than expected. While this is rare, it is nice when it happens.
- Negative slippage: Here, the price moves against you, and you end up buying higher or selling lower than you intended.
- Tolerable slippage: Most platforms let you set a slippage tolerance, which is the maximum amount of slippage you’re willing to accept. If the price moves more than that during the trade, it will fail instead of filling at a bad price.
How to Reduce Slippage in Crypto Trading
Now, let’s get into how to avoid slippage or at least reduce it:
- Set a reasonable slippage tolerance: Always check and adjust your slippage settings. For most tokens, a 0.5%–1% tolerance is safe. For very volatile or illiquid tokens, you might need 2% or more.
- Break large trades into smaller ones: Trying to swap $20,000 worth of a token on a low-liquidity pair will cause a massive price impact. Instead, break it into smaller trades to reduce slippage. However, keep in mind that you will pay more gas fees.
- Trade during low volatility: Avoid trading during massive news drops, token launches, or times when whales are moving the market. The more stable the price, the lower your slippage risk.
- Use limit orders on CEXs: If you’re trading on centralized exchanges, you can use limit orders instead of market orders. This guarantees you will only buy or sell at the price you choose, or better.
- Use DEX aggregators: Platforms like 1inch, Paraswap, or Matcha compare prices across multiple DEXs and find the best rate for your trade. They often split your trade across different liquidity pools to reduce slippage.
- Choose tokens with higher liquidity: Stick with tokens that have strong volume and deep liquidity. ETH, USDC, and other major cryptos usually have much less slippage than small-cap or obscure tokens.
- Increase gas fee carefully: In DeFi, increasing your gas fee helps your transaction confirm faster, reducing the time window for price changes. Just make sure you use tools like MetaMask’s gas estimator to find the sweet spot, so you do not overpay.
Conclusion
Although slippage is a natural part of trading, it can be a harsh experience in crypto, especially if you’re not prepared. Thankfully, you now know better. My hope is that the next time you trade, you will pause for a moment, check your slippage settings, and make smarter decisions that protect your funds.
Happy trading!
References
- kriptomat.io – What is Slippage in Crypto Purchases and How to Minimise it?
- changelly.com – What Is Slippage in Crypto Trading? And How to Avoid It
- kaironlabs.com – Crypto Market Making 101: Slippage & Slippage Tolerance