What Is Slippage in Crypto?
Explaining slippage in the cryptocurrency market—how it happens, why slippage is bad, and how to reduce it.
Published May 30, 2022.
If you've been interested in trading, you've probably heard of slippage. In simple terms, slippage is the expected price of an asset at the time you place the order and the price of the asset when the order executes. Usually, slippage is defined in small percentages (e.g., +0.21%), and it has a plus or minus symbol in front of it to show how the market has moved.
How Is Slippage in Crypto Caused?
Slippage happens in all markets, especially in cryptocurrency. Slippage is primarily caused by latency, which you might know as ping (i.e., the time the server needs to receive your order). The bigger the latency is, the bigger the slippage will be. Usually, slippage doesn't cause any problems, but it can occasionally be problematic in a highly volatile market like crypto.
Is High Slippage Good?
Whether slippage is low or high, it's best if it's kept to a minimum. If you're lucky and the market goes up by the time you place the order, then you'll probably profit directly from slippage. Otherwise, it will cause you to lose money. Whether or not you've had luck on your side, slippage is best when it's non-existent. If you're trading in the crypto market, you want to aim for consistency, which slippage has a detrimental effect on.
How to Stop Slippage in Crypto
There is no way to eliminate slippage completely, but you can do your best to reduce it. Unless you own the server that shows the cryptocurrency market prices, you'll have some slippage. Some of the best ways to reduce slippage are by trading on a server that is geographically closer to you. Usually, the smaller the geographical distance is, the smaller your latency will be. You can also consider using a VPS (virtual private server) with lower latency than the computer you're currently using.