navigating-slippage-crypto-trading-understanding-and-managing-impact
Back to Blog

Navigating Slippage in Crypto Trading: Understanding and Managing the Impact

In the realm of cryptocurrency trading, managing slippage is an essential skill that goes hand in hand with chart analysis and trend evaluation. Slippage, the variance between the expected and executed prices of an asset during a trade, is an inherent part of the crypto market's volatility.

Understanding Slippage Causes:

The primary cause of slippage is heightened demand leading to increased price volatility. In the crypto space, where markets can be particularly volatile, slippage becomes more pronounced. Liquidity, available on trading platforms, also plays a role. Major centralized exchanges (CEX) like Binance or Coinbase generally offer ample liquidity, minimizing slippage. Conversely, decentralized exchanges (DEX) with lower liquidity may result in higher slippage.

Illustrating Slippage Impact:

Consider Bob, aiming to buy 10 TON at $4 per token. Despite placing an order at this price, the slippage occurs, and he ends up paying $43 for the tokens due to a price increase during the execution period.

Managing Slippage:

While slippage cannot be entirely avoided, traders can employ strategies to mitigate its impact. One common method is placing limit orders, specifying a trigger price for asset sale. However, this approach carries the risk of non-execution if the asset fails to reach the set limit. For larger orders, traders may choose to split transactions into smaller trades. Although this can minimize slippage, it may not be suitable for assets with low market caps or liquidity.

Choosing the Right Exchange:

Selecting an exchange with adequate liquidity is crucial to managing slippage effectively. CEX platforms are often preferred for their liquidity, although some traders opt for DEX platforms for asset custody. Platforms like RocketX, a crypto aggregator, offer a non-custodial solution that aggregates liquidity from over 200 blockchains, minimizing volatility.

Advanced Controls for Slippage:

RocketX provides tools to further minimize slippage impact. Users can set slippage tolerance levels, protecting against undesired price changes. A price impact tool analyzes trade volume and frequency, aiding traders in decision-making. Additionally, users can set a minimum token amount, canceling trades if slippage exceeds expectations.

Understanding Slippage Dynamics:

Slippage is a natural part of crypto trading, impacting trades both positively and negatively. Over time, the effects tend to balance out. Traders, especially newcomers, should be aware of slippage's presence and adopt effective strategies and platforms to navigate its impact successfully.

DISCLAIMER: None of the authors, contributors, administrators, or editors connected to OWNR Wallet encourage readers to invest in cryptocurrency without doing proper research on their own. This article is purely for educational purposes only.

Share this article

We use cookies to improve your experience. By closing this message you agree to our Cookies Policy.