When an order is placed, especially a market order, there is often a small delay between submitting it and having it fill. In fast-moving markets, or in assets with a shallow order book where few buy and sell orders sit at nearby prices, the executed price can differ noticeably from the price shown when the order was placed. On decentralised exchanges that use liquidity pools rather than an order book, slippage also occurs because the trade itself shifts the pool's pricing curve, so larger trades relative to the size of the pool move the price more.
Slippage is a normal part of trading but can become a real cost, particularly for large orders in low-liquidity markets, where the executed price can end up substantially worse than expected. Many exchanges let traders set a maximum acceptable slippage, often called a slippage tolerance. Setting it too loose risks a poor fill, while setting it too tight can cause the trade to fail entirely during volatile conditions, since no price within the allowed range was available.
Checking an asset's available liquidity before placing a large order is a simple way to estimate how much slippage to expect, and breaking a large order into smaller pieces can sometimes reduce the overall impact.
Key takeaways
- Slippage is the gap between an order's expected price and its actual execution price.
- It tends to be larger for big orders and in markets or pools with thin liquidity.
- Setting a slippage tolerance on an exchange helps manage the trade-off between execution certainty and price control.
Slippage — frequently asked questions
Can slippage work in a trader's favour?
Yes. Price can move favourably between order placement and execution just as easily as it can move unfavourably, though most traders think of slippage primarily as a cost to manage rather than an advantage to expect.
How can I reduce slippage on a trade?
Trading more liquid assets, breaking large orders into smaller pieces, using limit orders instead of market orders, and avoiding particularly volatile moments can all help reduce slippage. Checking a market's order book or pool depth beforehand also gives a reasonable sense of what to expect.
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