What is slippage in crypto? (A beginner’s guide)
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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.