Slippage

Slippage in crypto refers to the difference between the expected price of a trade and the actual price at which the trade is executed. It typically occurs in markets with low liquidity or high volatility, causing orders to be filled at a different price than initially intended. Slippage can occur in both buying and selling scenarios.

Example 1:

Alice places a market order to buy 10 Bitcoin at $50,000 each. However, due to high demand and low liquidity, her order gets filled at an average price of $51,000 per Bitcoin, resulting in slippage of $1,000 per Bitcoin.

Example 2:

Bob sets a limit order to sell 100 Ethereum at $3,000 each. However, during a period of extreme volatility, the price of Ethereum drops suddenly. His order gets executed at an average price of $2,800 per Ethereum, resulting in slippage of $200 per Ethereum.

Case:

During a flash crash in the crypto market, many traders place market orders to sell their assets, causing a significant increase in selling pressure. This sudden surge in selling activity results in slippage as orders are filled at lower prices than anticipated. Traders who were not prepared for such volatility may experience substantial losses due to slippage.