Toncoin

Besides analyzing charts and trends, traders must also take into consideration the problem known as “slippage”, which could see they paying more for an asset than the price that’s displayed. 
<a href="https://www.investopedia.com/terms/s/slippage.asp" target="_blank" rel="nofollow noopener">Slippage is a natural phenomenon</a> in volatile markets and is therefore extremely pronounced in crypto. The term refers to the price of an asset at the time the order is place, and the value when the order is actually fulfilled. Slippage occurs when buying and selling almost any kind of crypto asset, and can be both positive or negative, depending on which way the asset price moves. 
<h2 id="what-causes-slippage">What causes slippage?</h2> 
One of the main causes of slippage is strong demand that causes price volatility. If many people are buying an asset, numerous orders might be executed between the time you place your own order, and fulfill it. The execution of these prior trades may push up the price of the asset, meaning you have to pay more to acquire the number of tokens you specified. 
The available liquidity on a trading platform impacts slippage too. On a big CEX like Binance or Coinbase, there is usually plenty of liquidity available to fulfill everyone’s orders, and so slippage will be minimized, but on many DEX platforms where lower liquidity is available, the slippage can be fairly excessive. 
To understand slippage and the impact it can have, let’s look at an example. Bob is looking to buy some Toncoin and places an order to buy 10 TON at $4 per token. At that price, he can expect to pay $40 in total. However, between the time Bob places his order and it finally executes, the cost of TON increases by $0.30. So Bob ends up paying $43 for 10 TON tokens instead. 
Of course, traders can also get lucky. If the price of the asset falls during the time it takes to execute the order, they will end up paying less than the price that was originally stated. 
Traders should beware that slippage can become more complicated, especially when trying to execute larger orders amid a period of excessive price volatility. During such times, Bob could end up paying $4.05 for the first three TON tokens, followed by $4.32 for the next four tokens, and then $4.50 for the final three. When buying just 10 tokens, this probably isn’t going to be a problem for most people, but for those buying thousands of tokens at once, it can mean a huge difference between the price they expected to pay, and the price they actually paid. 
<h2 id="how-can-traders-manage-slippage">How can traders manage slippage?</h2> 
Slippage is unavoidable, but there are certain things traders can do to lessen the impact. One of the most common ways to do so is by placing a limit order, where the trader specifies a limit cost that will trigger the sale of an asset. The trade is only executed when the asset’s value reaches the specified price or better. However, there is the danger that the order will never be executed if the limit is set too high and the asset fails to reach that price. 
A second common strategy that’s employed by traders looking to buy a large quantity of tokens is to split their order in multiples. For instance, if Bob is trying to purchase 10,000 TON, he might split the order into three or four smaller trades. In doing this, they can minimize the amount of slippage that would occur if they made a single, large order. 
However, this is not always the best strategy. If the asset in question has a low market cap or low liquidity, executing multiple trades could impact the price of the asset each time, pushing it up. So they could end up paying much more for the final order. Therefore, it might be more advantageous to complete the trade in a single order. 
<h2 id="what-exchange-is-best-for-minimizing-slippage">What exchange is best for minimizing slippage?</h2> 
Because the available liquidity on a platform has a direct impact on the slippage users may experience, many traders opt to go with larger CEX platforms that can easily accommodate their orders. 
Some traders are uncomfortable with CEXs though, as it means <a href="https://medium.com/minima-global/cex-dex-and-p2p-exchanges-d1ef520852b3" target="_blank" rel="nofollow noopener">giving up custody</a> of their assets. Traders who want to retain full control of their assets tend to prefer DEX venues, but those platforms generally have much lower liquidity. 
The good news is that certain trading venues are inherently more suited to minimize slippage. For instance, the <a href="https://www.rocketx.exchange/" target="_blank" rel="noopener">RocketX</a> platform is a crypto aggregator that was developed as a means of seamlessly transferring digital assets across more than 200 different blockchains using a single UI. It’s designed to abstract away the complexity of bridging tokens across different networks. It effectively aggregates more than $100 billion worth of liquidity distributed across hundreds of networks into a single, giant pool, minimizing the volatility that’s associated with low liquidity. Moreover, it’s non-custodial, meaning users simply connect a wallet such as MetaMask and retain full custody of their digital assets. 
Besides pooling liquidity, RocketX offers a number of settings to help users further minimize slippage on their trades. For instance, users can set a specific slippage tolerance level to protect themselves from buying at a higher price than they’re willing to accept. The default slippage tolerance is set at 0.5%, but users are free to adjust this as they desire. 
RocketX also provides a price impact tool that analyzes the current trade volume and frequency between two currency pairs in order to determine how much slippage there is, and which direction it’s likely to go. This can help traders to decide if the trade is worth going ahead with. Finally, it also offers users to set a minimum amount of tokens they’re willing to receive when their trade is executed. In this way, if the slippage turns out to be greater than anticipated and the user would end up with a lower amount of tokens than specified, the trade will simply be canceled, ensuring they won’t trade at a loss that’s higher than they’re willing to bear. 
Through these controls, RocketX not only estimates the expected slippage, but also provides mechanisms for traders to protect themselves in case that estimate proves to be inaccurate. 
<h2 id="slippage-works-both-ways">Slippage works both ways</h2> 
The reality is that slippage is a completely normal and unavoidable part of the crypto trading experience and it remains outside of anyone’s control. However, by choosing an exchange platform with advanced controls and using certain strategies, it’s easy enough for most traders to manage the impact of slippage. 
Moreover, it’s important to remember that slippage isn’t always a bad thing. On balance, the effect of slippage will be positive as much as it is negative, as many trades will execute at a better than expected price, meaning the trader will come out ahead just as often as they take a hit. Over time, most traders find that slippage naturally balances itself out. Still, it’s something that every trader needs to be aware of, especially if you’re new to the game. 
The subject matter and the content of this article are solely the views of the author. FinanceFeeds does not bear any legal responsibility for the content of this article and they do not reflect the viewpoint of FinanceFeeds or its editorial staff.

Slippage In Crypto Trading Can’t Be Avoided, But It Can Easily Be Managed

Table of Contents

FinanceFeeds

Other articles published on Nov 15, 2023

An Introduction into Superfluid Staking

Unchained Partners with Bakkt to Expand its Collaborative Custody Network for Bitcoin

The Rise and Fall of Bitcoin: SEC Delays Hashdex ETF Decision, BTC Price Drops

Showmax set to relaunch in Feb 2024 with Showmax Premier League and more

Top Trader Predicts Bullish Continuation for Solana After Corrective Move, Says SOL Remains in Mo...

Value of Solana and XRP Climbs; NuggetRush Takes the Lead in ICO Market

Join our free newsletter for daily crypto updates!