What is slippage in crypto?

Slippage in crypto is the difference between the price you were shown when you placed a trade and the price at which the trade was actually filled. It happens because prices can change in the seconds between clicking "buy" and the trade being completed, and because a large order may use up the best available prices. Slippage is usually negative, meaning a worse price, but it can occasionally work in the trader's favor.

What does slippage mean in crypto?

In finance generally, slippage describes the gap between the expected execution price and the real one. Crypto is especially prone to it for a few reasons. Markets trade around the clock and can move sharply, and many smaller tokens have little trading activity, which is known as low liquidity.

On a centralized crypto exchange, slippage mostly affects market orders. Kraken's support pages note that a market order fills at the best price currently in the order book, so the trader is not guaranteed the exact price they saw. On a decentralized exchange, trades are settled on a blockchain, so the price can shift between the moment a swap is submitted and the moment it is confirmed.

What causes slippage?

Uniswap Labs lists several drivers:

• Fast price moves. Prices can change while a transaction is waiting to be processed.
• Thin liquidity. If a liquidity pool or order book is small, even a modest trade can move the price.
• Large trade size. A big order can shift the price of the pool it trades against.
• Front-running. Automated traders can spot a pending transaction and trade ahead of it, worsening the price for the original trader.

What is a slippage crypto example?

The following is a made-up example with round numbers, for illustration only.

Suppose a trader wants to buy a token quoted at $1.00 and plans to spend $1,000, expecting 1,000 tokens. By the time the trade completes, the average price paid is $1.02. The trader receives about 980 tokens instead of 1,000. The slippage is $0.02 per token, or 2 percent.

A simple slippage calculation works this way: subtract the expected price from the actual price, divide by the expected price, and multiply by 100. Online "crypto slippage calculators" generally apply this same formula.

What is slippage tolerance?

Slippage tolerance is a setting, common on decentralized exchanges, that sets the most the price is allowed to move against the trader. It is expressed as a percentage. Uniswap Labs says typical settings range from 0.1 percent to 5 percent and that its app suggests a value automatically.

If the price moves beyond the chosen tolerance, the swap does not go through. Network fees, sometimes called gas fees, may still be charged for the failed attempt. Setting the tolerance very high makes a trade more likely to complete, but Uniswap Labs warns it also gives front-running bots more room to profit at the trader's expense.

A limit order is another way to control price on a centralized exchange. Kraken explains that a limit order will not fill at a worse price than the one set, although it may never fill at all.

Crypto prices are volatile, and the price you see is not always the price you get.