TradingIntermediate#Execution#Risk
Slippage
S
Definition
The difference between the expected price of a trade and the actual price at which the trade is executed due to low liquidity.
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Concept Diagram
Key Takeaways
1
Slippage is the difference between expected and actual trade execution price
2
Large orders in illiquid pools move the price against you automatically
3
Set slippage tolerance to cancel trades if price deviation exceeds your threshold
4
Avoiding slippage is essential for maintaining execution alpha in trading
Practical Example
You try to buy $500K of a small-cap token on Uniswap with only $1M liquidity - the price moves 15% against you. Setting 1% slippage tolerance would have cancelled the trade automatically.
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Related Terms
Trading
Tick SizeThe minimum price increment at which an asset can be traded on an exchange.
Trading
Post-Only OrderA limit order that ensures the trader only acts as a 'maker' (adding liquidity) and never as a 'taker' (removing it).
Strategy
TWAP (Time Weighted Average Price)An algorithmic execution strategy that spreads a large order over a fixed period to minimize market impact.
Blockchain
DEX (Decentralized Exchange)A P2P marketplace where users can trade cryptocurrencies directly without a central intermediary taking custody of funds.
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