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Hi friends! how are you doing? Welcome to my blog, it's super good to have you back here. I trust you got value from my last post. I bring to you another interesting content, one that I believe you would find interesting as usual. In my previous post, we explored the concept "Wash Trading", you can check out my blog to read through if you haven't.
Today, we would be looking at **Slippage** in the crypto world... it's actually another topic of interest I feel y'all should be enlightened on.I hold the belief that many of us do not understand how this works. Anyway we are going to delve deeper into in today post.
|**Introduction**|
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Almost everyone of us here if not all have been victims of slippage in the crypto market. It can be very frustrating sometimes but then it's a bit difficult to eliminate this occurrence in the market, however we can guard against it and always get the best out of the market if we follow certain principles in the market.
The fact is, slippage plays a very important role in determining a traders profitability in the market, it might looks like it's no big deal but mehn! It is. What really is slippage and why does it occur? This and many more questions are what this post attempt to give answers to. I hope you find this particular post helpful. Let get right into it guys...shall we? I believe you just gave a yes..
|**What is Slippage**|
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Slippage refers to the difference in price between the price at which a trader wants his trade to be executed and the actual price it was executed. If you're into buying and selling of cryptocurrency you must have experienced this severally.
There are times you target to buy or sell at a particular market price and then you triggered it at that point only to find out that your order got you a price different from what you expected.
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Let's make this a bit practical. Now I intend buying ETH at $3500, am just hoping that price gets there and then place my instant order which I expect to be executed immediately but to my utmost surprise, my order was executed at a different price of $3550 even when I thought I had placed my order at $3500.
What I just experienced here is what I call slippage, a slippage of $50.
There are several reasons why this occured in the market and we are going to be exploring that today , we would also be checking out how to avoid a replay of such so that we don't end up making little losses that could amount to something substantial when put together.
|**Causes of Slippage**|
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• **Volatility:** Volatility is one of the major reason for slippage. Price at this point rises and falls sharply even before your order is executed. I've personally had my share of this in the market. There were times I was looking to quickly sell at a particular price which is in massive profit and then before I realized, my order got executed below my intended price. The reason is simple, market Volatility played out.
• **Order size:** There is another kind of slippage that one experiences because your order size is large and cannot be met at a go. Insufficient volume in the market would not even let your large sized order to be executed. What then happens is that part of your order would be executed but this time with an unfavourable price.
• **Liquidity:** Traders in markets that are not liquid will definitely suffer slippage because of the less buying and selling activities taking place in such kind of market, you would struggle to get those who would like to take your large order. The end result would be that your order would be broken down to accommodate the little buyers or sellers willing to take your order and that price is always not favourable.
• **Network Congestion:** When the network is congested with a lot of order which of course are queued up for execution, you may get unlucky because as at the time it gets to your turn for your order to be executed, price might habe shifted from your expected outcome leading to slippage.
|**How to calculate Slippage**|
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Since slippage is the difference between the expected price and actual outcome of a trade, the formular would then be what i have below.
Slippage=[(Executed Price−Expected Price)/Expected Price]×100
Let's practicalize this. Assuming I want to execute a buy trade for Ethereum at $3000 and when the order was executed, it was executed at $3,100. The slippage would then be calculated thus:
**Slippage = [($3100 - $3000)/ $3000] x 100 = 3.3%**
According to our calculation above, we have a slippage of 3.3%
|**How to Avoid Slippage**|
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• **Using Limit Orders:** limit orders are orders that have been programmed to execute trade at your given price. It's an automated kind of execution that is not done manually. When price gets to your limit order it triggers exactly at that point. It doesn't fall shot, neither does it goes beyond.
• **Steer clear from market orders:** Since we have decided to use limit orders for buys and sells, it's then imperative to take our trade away from market orders. Market order would warrant that you trigger your order yourself at your desired price which could change before it executed but this is not the case with limit orders.
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• **Avoid trading at volatile period:** Trust me, you want to avoid trading at these volatile moment, you might not be able to get the best from the market because of the level of trading activitity going on in there. A volatile market will always breed slippage.
• **News:** News can also bring about slippage. Normally, News has a way of making price become very unstable and volatile.
|**Bottom Line**|
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I believe by now you understand what slippage is and how it operates. I also do hope you take advantage of the preventive measures. As my usual custom is, I would always encourage that you DYOR to be sure of every financial step you would want to take as I won't be liable for any form of loss encountered by you.
Feel free to share with me your thoughts in the comment section. Thanks for your time once again. Gracias!
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**Disclaimer: This post is made as an education and not investment advice. Digital asset prices are subject to change. All forms of crypto investment have a high risk. I am not a financial advisor, before jumping to any conclusions in this matter please do your own research and consult a financial advisor.**
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Regards
@lhorgic♥️
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