What Is Slippage in Crypto?
Slippage refers to the difference between the price you expect to get on a trade and the price at which the trade actually executes. In crypto markets, prices can move by the time your order fills, or your order may "eat" through multiple price levels in the book. Slippage is usually measured in absolute terms (e.g. $50 higher) or as a percentage of the expected price.
For example, if you aimed to buy at $10,000 but your order filled at $10,100, that $100 difference is slippage (1% of the price).
Formula: A simple formula to calculate slippage in percentage terms is:
Slippage (%) = [(Executed Price - Expected Price) / Expected Price] × 100%
This formula yields a positive percentage for "negative slippage" (price executed worse than expected) and a negative percentage for "positive slippage" (price better than expected).
Positive vs Negative Slippage
Positive slippage means you got a better price than anticipated. If you expected to buy at $50 per token but executed at $48, you saved $2 per token. For sells, positive slippage means receiving a higher price than expected.
Negative slippage is the more common concern. If you planned to buy at $50 but filled at $52, that $2 higher price is negative slippage that directly eats into trading profits. For sells, negative slippage means receiving less than the quoted price.
The goal is to minimize negative slippage while occasionally benefiting from positive slippage when market conditions allow.
Why Slippage Happens
Slippage occurs when the market price changes or insufficient liquidity exists at your desired price during trade execution. The main causes include spread and depth limitations, volatility surges, and venue design.
Spread & Order-Book Depth
Two critical factors determine slippage on order-book exchanges:
Bid-ask spread: The gap between the highest buyer bid and lowest seller ask. Market orders cross this spread immediately, creating built-in slippage. A 0.5% spread means you effectively pay 0.5% more than mid-market price. Tight spreads reduce this slippage component.
Order book depth: Available liquidity at each price level. Large orders relative to available volume sweep through multiple price levels. For example, if the best ask is $100 with 10 units available, next at $101 with 15 units, and you buy 30 units, you'll purchase at multiple price points, creating slippage from market impact.
Low liquidity (wide spreads, thin depth) increases slippage risk. This explains why small-cap pairs exhibit more slippage than major pairs like BTC/ETH on liquid exchanges.
Volatility & News Windows
Volatility significantly contributes to slippage. During rapid price movements, the market can change substantially between order initiation and execution. Crypto's volatile nature makes slippage common, especially during news events.
Major announcements, economic releases, or viral social media can cause abrupt price jumps. Markets can "gap" when sudden order rushes overwhelm available liquidity. Stop-loss cascades (stop runs) exacerbate slippage as triggered orders sweep through order books.
Volatility also reduces effective liquidity as market makers widen spreads or pull quotes during fast markets—a double impact on slippage.
Venue Design: Order Books vs AMMs
Centralized exchanges use order books where market orders match against available limit orders. Slippage results purely from market mechanics—thin books or price movement create worse fills. You manage slippage through order type selection rather than tolerance settings.
Decentralized exchanges operate differently. AMM-based DEXs like Uniswap use liquidity pools with pricing formulas—larger trades suffer more price impact. Order book DEXs like dYdX function similarly to centralized exchanges but with on-chain settlement. DEX interfaces allow slippage tolerance settings (e.g., "accept up to 1% worse price") that protect against extreme negative slippage by reverting transactions that exceed your threshold.
Slippage in Perpetual Futures
Perpetual futures (perps) are a popular derivative in crypto, and they come with unique considerations for slippage. In essence, trading a perp is similar to trading on a regular order book, but the presence of high leverage and mechanisms like mark price and liquidation triggers can amplify slippage during volatile moves.
When you trade perps on an exchange, your order execution is subject to the same order book dynamics discussed above. However, perpetual futures come with unique slippage amplifiers:
Leverage-induced order cascades:
High leverage means small price movements can trigger cascading waves of stop-losses and forced liquidations across multiple positions
These simultaneous market orders flood the order book at once, creating sharp price dislocations that overshoot below fair market value
Traders executing orders during these cascade events face amplified slippage as available liquidity gets consumed rapidly
Mark price vs execution price dynamics:
Perpetual exchanges use mark price (an index-based reference) to trigger stops and liquidations, but actual execution occurs at prevailing market prices that may be significantly worse
Stop-limit orders provide slippage protection by setting both trigger and maximum exit prices, though they risk not filling during extreme market moves
Stop-market orders guarantee position closure but expose traders to potentially severe slippage during volatile periods
Fast market slippage amplification:
Volatile market conditions can produce extreme slippage where fills occur $100 or more away from the last traded price as order book depth evaporates
Funding rate adjustments and associated market turbulence create additional windows of unexpected price volatility and execution risk
Experienced traders typically avoid market orders for large perpetual futures positions, preferring limit orders or smaller position sizes to minimize slippage exposure
To summarize, perpetual futures inherit all the usual slippage causes (spread, depth, volatility) with the volume turned up because of leverage and cascades. Always consider using protective measures (limit orders, stop-limits, smaller order chunks) when trading perps to avoid being "slipped" more than you can handle, especially in turbulent conditions.
How to Measure and Monitor Slippage
Knowing about slippage conceptually is one thing – but as a trader, you should also measure it and keep track of how much it's affecting your trades. Here's how you can calculate slippage on a trade and monitor it over time:
Calculating Slippage on a Trade: The basic calculation was given earlier. For a given trade:
Absolute slippage = Executed Price – Expected Price (this could be in dollars, etc.)
Percentage slippage = (Absolute slippage / Expected Price) × 100%
The challenge sometimes is defining the "expected price." If you placed a market order, your expected price might be the last seen price or quote when you hit the button. For consistency, traders often use the mid-price or the price at order submission as a benchmark. In a limit order, if partially filled, one might consider the limit price as the expectation (though by design a limit should not fill worse than that).
Consider these two practical scenarios to illustrate slippage calculation:
Buy order scenario:
You intend to purchase 5 BTC at an expected price of $30,000, anticipating a total cost of $150,000
The order book contains limited liquidity: 2 BTC at $30,000, 2 BTC at $30,100, and 1 BTC at $30,200
Your market order executes across multiple price levels, resulting in a total cost of $150,550 for 5 BTC
This creates an average execution price of $30,110 and generates $550 in negative slippage (approximately 0.37% of your intended purchase amount)
Sell order scenario:
You plan to sell 100 ETH at an expected price of $2,000, hoping to receive $200,000
Market conditions cause your order to execute at an average price of $1,980 per ETH, yielding only $198,000
This results in $2,000 less than expected, representing negative slippage of $20 per ETH (negative 1% slippage)
Conversely, if market movement had favored your trade and you received $2,010 average, you would experience positive slippage of $1,000 (plus 0.5%)
Pre-Trade Slippage Checks: Before entering a trade, especially a large one, it's wise to estimate potential slippage:
Check the spread: How many basis points is the current bid-ask spread? A 10 bps spread (0.1%) on a major pair might be fine; a 100 bps (1%) spread on a small-cap coin is a warning that even a tiny market order will incur slippage equal to that.
Check order book depth: Look at the order book (or use an exchange's depth chart tool) to see how much volume is available within a certain range. For example, "1% depth" is a common metric – how many units can you trade before the price moves by 1%? If you want to buy $50,000 worth of an altcoin but the entire 1% depth on the buy side is only $30,000, you know a market order of your size will push the price more than 1%.
Consider recent volatility: If the asset has been seesawing or there's a major event imminent, assume prices will move quickly. You might widen your expectations for slippage. Conversely, if things are calm and the book is thick, you can expect little slippage.
Monitoring slippage over time: Advanced traders incorporate slippage into their performance metrics by computing the implementation shortfall – the difference between decision price and final fill price. Keeping a journal or using analytics showing "slippage per trade" helps identify patterns, such as excessive slippage during specific trading sessions or on particular exchanges, allowing you to adjust timing or choose more liquid platforms.
In essence, treat slippage as a real cost (just like trading fees). Measure it, and then you can manage it.
Practical Ways to Minimize Slippage
Slippage may be inevitable at times, but traders have a toolbox of tactics to reduce it. Below are several practical methods to control slippage and improve your execution quality. Use a combination of these as appropriate for your trading style:
Use limit orders instead of market orders:
Set the worst price you're willing to accept, avoiding the unknown of a market order that could fill at any price
Example: If ETH is $2,000 and you don't want to pay more than $2,020, place a buy limit at $2,020 rather than a market order
Many exchanges offer post-only or "maker" order options, which ensure your order adds liquidity and doesn't immediately take
Avoid crossing wide spreads by adding liquidity rather than taking it
Break large orders into smaller chunks:
Don't dump large trades all at once - slicing the order can significantly reduce impact
Use algorithmic execution tools like TWAP (Time-Weighted Average Price) or VWAP (Volume-Weighted Average Price) strategies
Consider iceberg orders (if supported) where only part of your order is visible in the order book at any time
Hide your true order size to avoid scaring off liquidity or triggering front-running
Trade during high-liquidity periods:
Schedule larger trades during the market's peak hours when your asset's volume is highest
Liquidity is typically highest when multiple major markets are active (London + New York overlap)
Avoid thin book periods like 3am UTC on a Sunday when you might find more slippage
Be cautious around major news events where slippage can skyrocket from unexpected releases
Choose the right trading pairs and venues:
Stick to trading pairs with deep liquidity and tight spreads when minimizing slippage is critical
Large-cap coins on top-tier exchanges generally execute with much less slippage than small-cap coins on minor exchanges
Gauge quality by looking at 24h volumes, order book depth statistics, and bid-ask spreads
For DEX trading, consider using aggregators or splitting trades across multiple liquidity pools
Set reasonable slippage tolerances (DEX trading):
Don't accept high tolerances like 5%+ unless absolutely necessary
Setting slippage tolerance to 0.5% or 1% can protect you from unexpectedly bad fills
Adjust settings based on asset volatility: volatile tokens may need 1-2%, major pairs often need only 0.1%
Remember to adjust settings back down after any one-off changes (many DEX UIs keep your last setting)
Use stop-limit orders for stops:
Consider stop-limit orders rather than plain stop-market when protecting positions with stop-losses
Set both a trigger price and a limit price: "trigger at price X, and sell with a limit of Y"
Example: BTC at $30,000, stop out at $28,000, place stop-limit with trigger at $28,000 and limit at $27,500
Risk: if price never comes back above limit, you remain in the trade - set limit spread wide enough to likely fill
Account for fees vs slippage:
Consider total cost when choosing between market orders (taker fees) and limit orders (maker fees)
Sometimes higher taker fees make market orders doubly expensive compared to patient limit orders
On venues with zero or tiny taker fees, quick execution might be acceptable if slippage is minimal
Incorporate both slippage and fee considerations into trading decisions
Each method has its use. Often, a combination (e.g. using a limit for entry, and a stop-limit for exit, while timing trades in good liquidity) yields the best overall result in minimizing slippage and managing risk.
Trader's Pre-Trade Checklist
Before you hit that buy/sell button, run through this quick checklist to anticipate and mitigate slippage:
Check the spread and depth: Look at current bid-ask spread (is it tight or wide?) and how much volume is sitting in the order book at the nearest price levels. A quick glance here helps set expectations on slippage for a market order.
Assess market conditions: Is the asset experiencing high volatility? Any news or economic events about to drop? If yes, be extra cautious – maybe wait or use smaller positions/strict limits. Avoid trading large sizes during known risky windows (e.g. major announcement in 1 minute, or very low-liquidity times).
Choose the right order type: Decide if you can use a limit/post-only order for this trade or if you must use a market order. If using market, understand you're accepting potential slippage; if using limit, choose your price level wisely. For large orders, consider an algorithmic execution or breaking it into chunks rather than one big swipe.
Set protections: If on a DEX, set a reasonable slippage tolerance (%). If placing stop-loss orders, consider a stop-limit to avoid getting a disastrous fill in a spike. Always know what your "worst acceptable price" is and use the tools to enforce it when possible.
Mind the pair and venue: Are you trading on a reputable platform with good liquidity for this pair? Double-check if perhaps an alternate exchange or pair offers better liquidity (for example, sometimes a USD pair might have less slippage than a BTC-denominated pair for the same altcoin, or vice versa). Pick the venue where your trade will have the least market impact.
Factor in fees: Remember to account for trading fees alongside slippage. A small slippage on an illiquid exchange might not be worth it if you're also paying high fees – sometimes a slightly higher price on a deep-liquidity, low-fee exchange results in a better net outcome.
A bit of preparation and situational awareness goes a long way. By checking these items, you'll avoid many surprises and ensure you're trading in a way that limits unnecessary slippage.
Conclusion
Slippage is a normal part of trading in any dynamic market, and crypto is no exception. It simply reflects that markets move and liquidity can be limited. However, understanding what slippage is and why it occurs empowers you to manage it rather than fall victim to it. By using the right order types, planning your trade execution, and being mindful of market conditions, you can dramatically reduce the negative impact of slippage on your trades.
Over time, this will save you money and improve your trading performance. Remember, every trade has costs – but with the strategies outlined above, you can keep slippage costs to a minimum. Trade responsibly with robust order controls to protect yourself in the fast-paced crypto market.
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