For instance, when a major news event occurs , such as an economic data release or a company’s earnings report, it can cause prices to jump significantly from one trade to the next. This volatility risk is a common discrepancy forex traders must navigate, especially during major economic announcements. Slippage isn’t confined to one type of trading; it can happen across various markets. In stock trading , price discrepancy might occur during market gaps at the open or during high-impact news events.

What Does Slippage Mean in Crypto?

While limit orders can prevent negative slippage, they also come with the risk of the order not being executed at all if the market price never meets the limit order price. This trade-off is a key consideration in strategies to avoid shortfall in trading. The time it takes for your broker to execute your order can also contribute to the shortfall. If there’s a delay between the moment you place your order and when it’s executed (known as ‘execution delay’), the market price can change. This is where high-frequency trading (HFT) and advanced trading platforms come into play, as they can reduce the time delay, potentially minimizing price discrepancy.

How to avoid slippage

These methods won’t remove slippage altogether, but they give you more control. The key is to stay aware of market conditions and choose the approach that best fits your trading style. While slippage can still occur during high volatility, the overall experience is generally smoother and more predictable compared to decentralized platforms. In low-liquidity markets, such as small-cap or lesser-known tokens, there aren’t enough buyers or sellers to smoothly handle large orders. These tools won’t remove slippage completely, but they can make it easier to trade with confidence and limit unwanted surprises. Knowing their differences helps you pick the right platform and set expectations.

Market Volatility

When a market order is placed, it’s filled at the current market price, which can be different from the last quoted price due to market volatility and liquidity—two factors we’ve already discussed. Advancements in trading technology have provided traders with tools to help minimize slippage. Algorithmic trading systems can execute trades at a speed and frequency that is impossible for a human trader, reducing the time lag between order placement and execution. This is why understanding market depth and the volume of orders at different price levels is crucial for traders.

To protect themselves slippage traders can avoid times of heightened volatility, trade liquid markets and use guaranteed stop losses. Slippage is the difference between the price a trader expected to pay or receive and the actual price they paid or received because the market moved while their trade was being executed. This can happen even when trading online, in the split second it takes between an order being given and received.

The commercialisation of services and the acquisition of FX choice Review clients can only be carried out in Spain by an authorised entity or through a tied agent. During peak demand, even paying higher gas fees may not guarantee faster confirmation. Network congestion occurs when too many transactions are waiting to be processed on the blockchain.

In the forex market, slippage often happens around major economic releases that cause quick and significant fluctuations in currency pairs. Cryptocurrency traders might experience discrepancies during periods of intense trading activity, which can cause the price of a digital asset to move sharply. A limit order prevents negative slippage but risks not being executed if prices don’t reach the limit. This risk increases in situations where market fluctuations occur more quickly, significantly limiting the amount of time for a trade to be completed at the intended execution price.

When Slippage Is More Likely to Happen?

• Centralized exchanges (CEXs) usually have deep liquidity, fast trade matching systems, and tools like limit orders to help manage execution.
• If there’s a delay between the moment you place your order and when it’s executed (known as ‘execution delay’), the market price can change.
• Typical defaults are around 0.5% to 1%, but in low-liquidity tokens, traders often face much higher slippage.
• This knowledge can help in making informed decisions and in selecting the right strategies to mitigate its impact and risk .
• For example, if you placed an order for shares in a company when they were trading at $100 and ended up paying $102 per share, you would have a 2% negative slippage.

Market prices can change quickly, allowing slippage to occur during the delay between a trade being ordered and when it is completed. However, slippage tends to occur in different circumstances for each venue. Spread bets and CFDs are complex instruments and come with a high risk of losing money rapidly due to leverage. The vast majority of retail client accounts lose money when trading CFDs.

What is slippage in finance?

If the pool is small, even modest trades can shift the price significantly. While DEXs offer more control and decentralization, slippage is harder to avoid. For active traders, monitoring blockchain activity and congestion levels can help avoid executing trades at the worst times. In contrast, highly liquid coins like Bitcoin and Ethereum typically see tighter spreads, meaning trades are filled closer to the expected price.

It happens because of sudden price fluctuation while the order was being executed. There are various slippage types, grouped by the type of order or the time slippage occurs. With crypto, it’s perhaps more likely as the market for digital currencies tends to be more volatile and, in certain cases, less liquid.

Liquidity is key; higher liquidity generally means less slippage and smoother trading. This forces your trade to spread across multiple price levels, often leading to worse execution. Slippage in crypto is the difference between the price you expect and the price you actually get. It doesn’t just happen by chance, and it results from specific market conditions. Slippage isn’t random; it tends to show up more during certain conditions. Knowing when it’s most likely to happen helps you prepare and trade more carefully.

• This market commentary and analysis has been prepared for ATFX by a third party for general information purposes only.
• In the forex market, slippage often happens around major economic releases that cause quick and significant fluctuations in currency pairs.
• Slippage can significantly impact trading costs, especially for active traders who execute numerous trades.
• These types of events can move markets significantly and lead prices to jump around.
• While DEXs offer more control and decentralization, slippage is harder to avoid.
• Slippage isn’t random; it tends to show up more during certain conditions.

This is because the difference in price between order and purchase of a stock can change for the better. Slippage can also occur when large orders are executed as there may not be enough liquidity  to maintain the expected price when the trade occurs. By leveraging these strategies, traders can take proactive steps to manage and reduce discrepancy, preserve their trading capital, and improve overall performance. Traders dealing with smaller, lesser-known tokens face higher risks than those trading Bitcoin or Ethereum. In short, the larger the trade and the thinner the market, the greater the impact of slippage on overall results.

You should therefore seek independent advice before making any investment decisions. This information has not been prepared in accordance with legal requirements designed to promote the independence of investment research and as such is considered to be a marketing communication. Although we are not specifically constrained from dealing ahead of our recommendations we do not seek to take advantage of them before they are provided to our clients. But as you reach the vendor, a sudden rush of customers has bought most of the apples, and now they’re $1.10 each. With this knowledge, you’ll be able to trade with clearer expectations, avoid common surprises, and make smarter, more confident choices in the fast-changing world of crypto. For small retail traders, the impact is usually minor, just a few dollars difference on a typical order.