What Is Slippage?
Slippage is the difference between where you expected to execute a trade and where it actually filled. Positive slippage means you got a better price than expected; negative slippage means worse. In crypto, slippage is primarily caused by low liquidity, large order sizes, high volatility, and the gap between your order reaching the exchange and being matched.
How Slippage Works
Slippage is most significant for market orders in thin markets. A market buy of $100,000 in a low-liquidity altcoin might move the price 2-5% by eating through the order book. DEX trades are particularly prone to slippage because liquidity pool depth determines the price impact formula. Setting slippage tolerance (e.g., 0.5-1% on DEXs) prevents catastrophic fills.
Why It Matters for Traders
Slippage is a hidden cost that erodes performance over hundreds of trades. A strategy backtested without slippage might show 50% annual returns, but with realistic 0.1% slippage per trade and 200 trades per year, that's 20% lost to slippage alone. Professional traders minimize slippage through limit orders, order splitting, and trading during peak liquidity hours.
