What does Slippage mean?
Slippage Meaning
Slippage occurs when the price of a cryptocurrency changes between the moment you place a trade order and the moment it actually processes. It is a common phenomenon in both traditional finance and crypto markets, but it is especially frequent on DEXs (Decentralized Exchanges). There are two main causes: Volatility (prices changing rapidly) and Low Liquidity. If you try to buy a large amount of a small token, there may not be enough sellers at your desired price. The system will automatically "slip" to the next available higher price to fill your order, resulting in you receiving fewer tokens than expected.
Key Takeaways
- It is most common during periods of high market volatility or when trading large amounts of illiquid assets.
- It can be positive (you get a better price) or negative (you get a worse price), though traders mostly worry about the negative kind.
- On decentralized exchanges like Uniswap, you can manually set your "Slippage Tolerance" (e.g., 0.5% or 1%).
- Using Limit Orders instead of Market Orders is the best way to prevent negative slippage entirely.
Why It Matters
Slippage is a "hidden fee." If you trade with 5% slippage, you are effectively paying an extra 5% tax on your transaction. For high-volume traders or those buying volatile Memecoins, managing slippage is the difference between profit and loss. On AMMs (Automated Market Makers), setting your slippage tolerance correctly is a security measure. If you set it too high, trading bots can "Sandwich Attack" you—seeing your pending transaction, buying the coin before you to push the price up, and forcing you to buy at the maximum slippage price.
Slippage Example
You want to buy $1,000 worth of a new token called "MoonCoin" priced at $1.00. You expect to receive 1,000 coins. However, MoonCoin has low liquidity. As your order starts buying up the available coins, the price rises to $1.05. By the time the trade finishes, you have spent $1,000 but only received 970 coins. The 30 "missing" coins represent the Slippage.
