Slippage in trading refers to the difference between the final execution price and the order price in digital asset trading. Slippage directly affects transaction costs and profits, especially in periods of high volatility and low liquidity in the cryptocurrency market. This article will comprehensively analyze the causes, types, measurement methods, influencing factors, and countermeasures of slippage to help you effectively manage slippage risk.
1. Concept and Types of Trading Slippage
1.1 Slippage Definition
Slippage refers to the difference between the ‘expected transaction price’ and the ‘actual transaction price.’ If the actual price is higher than the expected price when buying, or lower than the preset price when selling, it is positive slippage (disadvantageous to traders); otherwise, it is negative slippage (advantageous to traders).
1.2 Slippage Type
- Instantaneous Slippage Due to micro fluctuations in the market, the instant transaction price deviates after placing an order.
- Market Impact Slippage Large orders impact the depth of the order book, causing multiple price levels to be eaten up.
- Delay Slippage Latency or matching engine delay causes price fluctuations.
2. Factors causing and influencing slippage
2.1 Market Liquidity
The lower the liquidity, the shallower the depth of the buy and sell orders, the greater the price impact of the same amount of orders, and the higher the slippage.
2.2 Market Fluctuation
High price volatility leads to rapid price changes, limit and market orders are more prone to slippage.
2.3 Order Types and Sizes
Market orders can result in significant slippage due to being filled at the current best price; limit orders may incur opportunity cost due to unfilled open orders.
2.4 Exchange Matching Efficiency and Latency
The performance of the matching engine, network latency, and server load will all affect the extent of slippage.
3. Dealing with Slippage Strategies
3.1 Use Limit Orders and Batch Orders
Splitting large market orders into multiple small limit orders to reduce market impact.
3.2 Trading in high liquidity periods
Avoiding low liquidity and high volatility periods, such as moments of major news releases, can reduce instantaneous slippage and market impact slippage.
3.3 Select trading pairs with sufficient Depth
Priority mainstream token pairs with higher depth and lower slippage.
Conclusion
In the process of crypto asset trading, slippage is quite common, especially more pronounced in high fluctuation or low liquidity environments. By understanding the causes of slippage, choosing the right order types and timing wisely, traders can effectively reduce slippage costs and improve overall trading performance through this article.
