What is Slippage

Slippage in cryptocurrency trading refers to the difference between the expected price of a trade when you initiate it and the actual price at which it executes. Slippage occurs in both centralised exchange market orders (due to order book depth limitations) and decentralised exchange swaps (due to liquidity pool mechanics and price impact).

TWO TYPES OF SLIPPAGE

Price Impact Slippage (DEX): On AMM-based DEXs like Uniswap, your trade itself moves the price. The larger your trade relative to the pool's liquidity, the more you move the price against yourself. A $1,000 swap in a $100M pool has negligible impact (<0.01%). The same $1,000 swap in a $10,000 pool causes 10%+ slippage, you receive far fewer tokens than the quoted price suggested.
Market Slippage (CEX): When you place a market order on a centralised exchange, it fills against available limit orders in the order book. If there is insufficient liquidity at the current price level, your order consumes multiple price levels getting increasingly worse execution prices for each portion of the order.

SLIPPAGE TOLERANCE SETTINGS ON DEXESDEX

interfaces (Uniswap, PancakeSwap, Jupiter) allow you to set a maximum slippage tolerance the maximum price movement you will accept before the transaction automatically reverts. 0.1-0.5%: For major, highly liquid pairs (ETH/USDC) in normal market conditions. 0.5-1%: For moderate liquidity pairs. 1-5%: For low-liquidity tokens where price impact is unavoidable. >5%: Typically only for very illiquid tokens, high slippage settings also invite MEV sandwich attacks.

STRATEGIES TO MINIMISE SLIPPAGE

Split large trades into smaller transactions over time to reduce each trade's market impact. Use DEX aggregators (1inch, Jupiter, CowSwap) that route across multiple liquidity pools to find optimal execution. Trade during high liquidity periods major pairs have better liquidity during peak trading hours. Use limit orders rather than market orders on CEXs for precise price execution.

Terms in addition to the Slippage

Blockchain

A blockchain is a subset of a distributed database. The Bitcoin inventors originally prototyped the system in 2008. This modern database is made up of separate blocks that are connected together in a chronological chain. Blockchains may be used to store a wide range of data types. It has mostly been utilized as a public ledger for bitcoin transactions to date. A peer-to-peer network comprised of independent nodes uses a consensus process to ensure the blockchain's security and legitimacy. Each node in the network keeps a public and immutable copy of the data.

2 Factor Authentication (2FA)

2 Factor Authentication is a security measure with two layers. It is used by the majority of cryptocurrency exchanges. To log in, you must provide not only a password, but also a code obtained, for example, from the Google authenticator.

Airdrop

An airdrop is a method of distributing coins. End users can typically obtain coins for free or in exchange for doing a small task, such as subscribing to a newsletter, sending a tweet, or inviting others via a personal affiliate link. Cryptocurrency airdrops — the act of depositing cryptocurrency into public crypto wallets — are utilized as a marketing, liquidity creation, and network bootstrapping technique for many different types of blockchain initiatives.

Altcoin

Altcoin - "alternative coin" - is any kind of digital currency other than Bitcoin. Since the launch of Bitcoin, the world's first digital currency, many altcoins (as well as supporting blockchains) have been created. Altcoin digital currencies share many similarities to Bitcoin, but consistently and have significant differences. There are about 20,000 altcoins, and this number is expected to grow significantly in the coming years. Altcoins often develop Bitcoin features. Ethereum, currently the most widely used blockchain, supports digital contracts and separate applications where Bitcoin does not. Altcoins are also often created to cater to the needs of different users. The Litecoin blockchain, for example, can process payments quarterly for the duration of Bitcoin.

Cold Storage

Cold storage is the way to store cryptocurrency offline. The word refers to the use of offline wallets that are not connected to the internet. Cold storage is the most secure way to keep cryptocurrencies since an offline currency becomes less likely to be hacked and stolen. Paper wallets, printed renditions of private keys, and offline hardware and software wallets are all examples of cold storage.