In this article, you will learn what is slippage in crypto. Cryptocurrencies might be one of the best investment opportunities of the century. That being said, investing in cryptocurrencies is rife with potential pitfalls. Prices are notoriously volatile. There are possibilities for crypto slippage.
What is Slippage in Crypto?
Crypto slippage is another source of potential losses to be aware of. If traders or investors aren't careful, they could incur significant losses from crypto slippage over time.
Slippage occurs when a trader ends up buying or selling an asset at a different price than what they had originally intended. Markets are fast-moving. Conditions can change between the time an order enters the market and when the order actually gets executed, the result the trader getting a different price.
Crypto Slippage can be either positive or negative. In other words, whilst traders may receive a less favorable price than expected, they might also get a better price.
Whether slippage occurs or not depends on the type of order placed in the market. If a trader places a limit order, they agree to buy or sell a set amount at a set price subject to liquidity availability.
The upside of limit orders is that they guarantee no slippage. The downside is that it may take longer to fill a limit order, or may not get filled at all. Slippage occurs when traders attempt to buy and sell assets at the available market price. In other words, by placing a market order.
How Much Should Crypto Investors Worry About Slippage?
Being aware of what slippage in crypto is, and how to mitigate its downside risks, is useful for all cryptocurrency market participants. But some need to worry about it more than others.
For a small-time crypto investor who conducts transactions on an irregular basis and is looking to hold their crypto for a long time, it probably doesn't matter that much if their slippage is -0.5% instead of -0.25%. would (hopefully) pale in comparison to the long-term returns of the investment.
To larger scale investors, a -0.25% to -0.5% loss could actually amount to quite a sum of money. So, it might be worth their time and effort to try to minimize this as much as possible.
Meanwhile, cryptocurrency traders who conduct transactions with high frequency (day traders and scalpers) would also do well to take every step possible to minimize losses related to slippage. A -0.25% loss multiple times a day can quickly eat into profits.
Bottom Line
Slippage can mean getting less out of a trade than expected when initiated. Slippage can be very small and may go unnoticed by some. But a lot of money can easily be lost to slippage if traders aren't careful. So, you must be careful and this is about what is slippage in crypto.
