Slippage

You go to swap one token for another, the app shows you a price, and you confirm. But when the trade finishes, you end up with a bit less than you expected. That gap has a name: slippage. It's one of the most common surprises for new traders, and once you understand it, it's much easier to manage.

What Does Slippage Mean?

Slippage is the difference between the quoted price of a trade and the final price at which it's actually filled. It happens because prices can change in the moments between when you click "confirm" and when your trade is executed, or because your order is too large for the available supply at that price.

Picture yourself at a farmers market trying to buy 20 apples from a stall that advertises a price per apple. The seller has only five apples at that price. To get the rest, you have to buy from the next stall over, where the price is a little higher, and then the next. Your average price ends up higher than the sign you first saw. That's slippage.

How Slippage Happens

Here's a simple example. Say an app quotes you 1,000 tokens for your swap, but by the time your trade goes through, you receive 985. That 1.5 percent shortfall is slippage. On a small trade it might cost you only pennies, but on a large trade or a thinly traded token, it can add up quickly.

Slippage shows up on both centralized exchanges and decentralized ones, but the mechanics differ slightly.

On Order Book Exchanges

Centralized exchanges match buyers and sellers using an order book, a list of open offers at different prices. If you place a market order for more than the best offer can cover, the rest of your order fills at the next best prices. The bigger your order relative to what's available, the more slippage you'll see.

On Decentralized Exchanges

Many decentralized exchanges, or DEXs, use automated market makers. Instead of an order book, they hold tokens in a liquidity pool and set prices with a formula based on the pool's balance. Every trade shifts that balance, so larger trades move the price more. This effect is called price impact, and it's a major source of slippage on DEXs.

Timing and Network Delays

On a blockchain, your trade has to wait to be included in a block. While it sits in the mempool, other trades can be processed first and move the price. In fast-moving markets, even a few seconds of delay can change the result.

Positive and Negative Slippage

Slippage isn't always bad. It simply describes a difference, which can go either way:

• Negative slippage: You receive a worse price than expected, paying more when buying or getting less when selling.
• Positive slippage: The price moves in your favor before execution, and you get a slightly better deal.

In practice, beginners notice negative slippage far more often, especially on low-volume tokens or during big market moves.

What Causes High Slippage

Some situations make slippage much more likely. Watching for them can save you money.

• Low liquidity: Tokens with little trading activity or small pools have fewer offers, so prices jump with each trade. See liquidity for more.
• Large orders: The bigger the trade compared with available supply, the further it pushes the price.
• High volatility: During sudden news or market swings, prices can change sharply between quote and execution.
• Network congestion: Slow confirmation times give prices more time to move.

Slippage Tolerance Explained

Most DEX apps and wallets let you set a slippage tolerance, usually shown as a percentage. It tells the app the maximum price change you'll accept. If the final price would move beyond that limit, the trade fails instead of going through, though you may still pay a network fee for the failed attempt.

Setting tolerance too low can cause frequent failed trades, especially on volatile tokens. Setting it too high leaves you exposed to bad prices and to bots that watch for trades with generous tolerances. These bots can place trades right before and after yours to profit from the price move, a tactic often called a sandwich attack.

How to Reduce Slippage

You can't eliminate slippage entirely, but you can keep it small with a few habits:

• Trade liquid pairs: Stick to tokens and pools with high trading volume where possible.
• Split big orders: Break large trades into smaller ones over time to reduce price impact.
• Use limit orders: On exchanges that support them, a limit order only fills at your chosen price or better.
• Check the preview: Look at the estimated price impact and minimum received before confirming.
• Avoid wild moments: Trading during extreme volatility increases the chance of a bad fill.

Being aware of slippage is part of understanding the true cost of a trade, alongside exchange fees and network fees. A trade that looks cheap on fees can still turn out expensive if the slippage is high.

Useful Links

• How do you get started with decentralized trading?
• What are the types of crypto exchanges?
• What are OTC crypto markets?
• What is a liquidity pool?