Slippage and the BOTS app
Slippage and the BOTS app
Slippage is the difference between the fill price of your buy or sell order and the price you anticipated when you submitted your order. This occurs because it does not go through immediately, and the price may change throughout this period.
Slippage occurs in all kinds of markets, stocks, bonds, forex, and especially in the crypto. In the crypto world it is more frequent and a lot worse because of high volatility (prices change all the time). The phenomenon is especially known on decentralized exchanges (e.g. Uniswap, Pancakeswap). However, not only high volatility causes slippage but also when you trade altcoins that have low liquidity and low volume.
Positive and negative slippage are the two types of slippage. To illustrate, let us consider buy orders. Positive slippage occurs when the price at which your order is completed is less than the one you intended. In other words, you obtain a better bargain than anticipated. You acquire more for less. On the other hand, negative slippage happens when your order is fulfilled for a higher price than the one you specified. Simply said, because you purchase for a higher price, you don't get as good of a deal as you wanted because you bought it for more. Sell orders operate similarly - positive: you sell at a higher rate; negative is when you sell at a lesser rate.
Imagine you want to buy coins and submit a buy order at $4.50. But then, your order gets completed at $5.00 instead. This means that you ended up paying more than what you originally wanted due to negative slippage. Or your order is filled at $4.10, meaning you were able to take advantage of a good deal due to positive slippage. If you're looking to sell coins, and you submit your order at $5.00 but it gets filled at $5.55, this means you sold for a better price than expected because of positive slippage. If you sell at $4.90, then you experience negative slippage.
Most often in cryptocurrency markets, exchanges permit traders to set a slippage tolerance to avoid poor trade execution. Slippage tolerance is the maximum percentage change in terms of the price a trader is willing to endure for their trade to execute.
Tips to avoid slippage
First, market orders run the risk of slippage. Limit orders are a better alternative to avoid or eliminate slippage. Second, make sure to be knowledgeable about big events going on in the crypto world and stock market that can have a significant impact on the price movement. For instance, things like announcements about project updates (for example Ethereum 2.0's release) or quarterly earnings reports in the stock market. Third, trade low-volatility securities or cryptocurrencies (at least less volatile than other cryptos). Low volatility implies that the price changes are minor, which means that slippage is not as significant as it is in highly volatile markets. Lastly, choosing markets with high liquidity allows orders to fill rapidly, thus resulting in less time for slippage to take place.
Slippage is a phenomenon that affects all kinds of markets but is especially prevalent in the crypto world due to the high volatility of prices. There are two types of slippage – positive and negative – and it is important to be aware of both when trading. There are various ways to avoid or eliminate slippage, such as using limit orders instead of market orders and trading in markets with high liquidity. By being aware of slippage and taking steps to avoid it, traders can help ensure that their trades are executed at the price they want.