Slippage refers to the difference between the expected/requested price of a trade and the actual execution price. Slippage is especially common in markets with high volatility and limited liquidity, such as the cryptocurrency market. During rapid price movements, orders may be filled at prices different from what you anticipated.
What Factors Can Cause Slippage in the Crypto Market?
(1) Poor or Insufficient Liquidity
When market liquidity is limited, large orders (especially market orders) may be executed across multiple price levels in the order book, causing the final average price to deviate from the requested price.
Example: A user wants to buy 100 BTC at 20,000 USDT. The execution may occur as:
- 40 BTC filled at 20,000 USDT
- 30 BTC filled at 20,001 USDT
- 30 BTC filled at 20,002 USDT
The average execution price becomes 20,000.9 USDT, which is higher than the requested price (20,000 USDT), resulting in 0.9 USDT slippage.
(2) Intense Market Volatility
In volatile markets, the market price can change after you place an order but before it is fully executed. Even a few seconds can make a difference.
Example: A user wants to buy 100 BTC at 20,000 USDT. When the order is placed, the order book shows bid/ask at 19,990.50 / 20,000 USDT. In a fast-moving market, prices may shift to 20,000.5 / 20,001 USDT before the order is filled. The order executes at 20,001 USDT, producing 1 USDT negative slippage per BTC, or 100 USDT total slippage on a 100 BTC order.
Volatility can also increase slippage because large orders may reveal information that some market participants react to quickly.
How to Reduce Slippage
(1) Prefer Limit Orders Over Market Orders
- Market orders execute at the best available price and may experience slippage.
- Limit orders specify a price you are willing to trade at, helping you control the execution price.
Important: A limit order does not guarantee a full fill. In fast markets, it may be partially filled or not filled.
(2) Choose Trading Conditions Carefully
Slippage can occur on any trading platform. To reduce slippage risk:
- Trade when markets are relatively stable (avoid major news releases if you want predictable execution).
- Pay attention to order book depth, spread, and liquidity of the trading pair.
(3) Split Large Orders Into Smaller Orders
Large orders tend to cause more slippage because they consume more liquidity and may take longer to execute.
Instead of placing one large order:
- Break it into smaller orders
- Execute them over time to reduce impact on the order book
If you use execution strategies (such as Sliced order execution approaches), they may also help reduce slippage by spreading fills across time.
Reminder
Slippage is a normal market phenomenon in crypto trading, especially during high volatility, thin liquidity, or when using market orders. Always consider slippage when planning entries/exits, setting stop-losses, and sizing positions—particularly in perpetual futures where leverage can amplify outcomes.
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Risk Disclaimer
Cryptocurrency investments are subject to high market risk and price volatility. You should only invest in products that you are familiar with and fully understand the associated risks.
Before making any investment decisions, please carefully assess your investment experience, financial situation, investment objectives, and risk tolerance, and consider seeking advice from an independent financial advisor.
The information provided in this document is for informational purposes only and should not be considered financial, investment, or trading advice. Past performance is not indicative of future results. The value of your investments may fluctuate, and you may lose part or all of your invested capital.
You are solely responsible for your investment decisions. Echobit shall not be liable for any losses or damages arising from your investment activities.