Trading
Slippage and price impact
Anyone placing an order on a crypto platform often notices that the final executed price differs slightly from the price shown on screen at the moment of confirmation. That difference is called slippage, closely related to another concept: price impact, the extent to which your own order moves the market price. For small amounts this difference is usually negligible, but for larger orders or illiquid markets it can add up significantly. Below we explain where slippage comes from, how price impact works in both order books and liquidity pools, and how to use the tolerance setting sensibly. It is not investment advice.
What exactly is slippage
Slippage is the difference between the price you expected at the moment of placing an order and the price at which the transaction is actually executed. This difference arises because time passes between confirmation and final processing, time during which the market can move.
On centralised exchanges with an order book, slippage arises because a market order consumes the next available prices in the book until the full amount is filled. On decentralised exchanges, slippage arises because the price within a liquidity pool shifts while your transaction is being processed, and because other transactions during the same period also affect the pool.
Price impact: how your own order moves the market
Price impact is closely related to but not identical to slippage. Where slippage describes the difference between expected and executed price, price impact specifically describes how much your own order moves the market price simply because of its size. An order that consumes 5% of the available liquidity in a pool or order book will by definition have a larger effect than an order of 0.1%.
This effect is proportional to market depth: the more liquidity available around the current price, the smaller the impact of the same order size. Coins with low market capitalisation or thin trading typically have much higher price impact per euro than large, heavily traded coins.
- Deep market: large orders move the price relatively little
- Thin market: even small orders can noticeably shift the price
- Market capitalisation is no guarantee of liquidity on every platform
Setting slippage tolerance on a DEX
Most swap interfaces let you set a slippage tolerance, usually between 0.1% and a few percent. This setting determines how much deviation from the expected price you accept before the transaction is reverted rather than executed.
A tolerance set too low in a volatile market causes repeated failed transactions, where you still pay network fees without any result. A tolerance set too high exposes you to a significantly worse execution price and to front-running, where automated bots see your transaction arriving in the mempool and jump in ahead to profit from your expected price movement.
Order type: market orders versus limit orders
On order-book-based platforms, order type plays a major role in how much slippage you experience. A market order is executed immediately at the best available prices, guaranteeing speed but not price. A limit order specifies a maximum or minimum price and only executes if the market reaches that price, giving price certainty but no guarantee of execution.
For larger amounts, experienced users often choose a limit order or split the order into smaller parts executed over time, to limit the impact on the market price.
Splitting orders to limit impact
A common technique to reduce price impact is splitting a large order into several smaller orders, spread over time or across multiple platforms. This reduces the effect on a single pool or order book, though it takes more time and sometimes more in transaction costs due to the larger number of individual transactions.
Advanced traders and institutional parties use specialised algorithms for this, automatically distributing orders based on market liquidity, but for the average user manually splitting into a few parts is often already enough to make a noticeable difference.
Frequently asked questions
Is slippage always unfavourable?
No, slippage can in theory also work in your favour if the price moves favourably between order placement and execution. In practice, however, the term is mostly used for the unfavourable case, since platforms usually only let you set a maximum negative deviation.
Why do my swaps keep failing with a low slippage setting?
This usually happens in volatile markets where the price moves faster than your tolerance allows. A slightly higher tolerance or retrying during a calmer moment can resolve this.
How much slippage tolerance is reasonable?
For liquid token pairs in a calm market, 0.1% to 0.5% is often sufficient. For less liquid tokens or volatile periods, 1% to 3% is sometimes used, with the corresponding risk of a less favourable price.
Does price impact also matter when buying through a broker with fixed prices?
For brokers showing a fixed price for smaller amounts, price impact for the user is usually already built into the spread. For larger orders, a broker may still charge a higher price as the amount increases.
Can I fully avoid price impact?
Fully avoiding it is not possible once an order is actually executed, but you can limit the impact by spreading orders, choosing liquid markets and using limit orders instead of market orders.
Read next
Crypto swapping explained
How does swapping one crypto for another via a decentralised exchange work? An explanation of routing, liquidity pools and costs, without investment advice.
What is a liquidity pool?
A liquidity pool is a shared reserve of assets you trade against. How depth, slippage, fees and impermanent loss actually work.
Reading orders and prices
How do you read an order book and price chart, and what is the difference between a limit and a market order? An explanation without investment advice.
What is a DEX?
A DEX is a decentralised exchange where you trade straight from your own wallet. How it works, what it costs, and the risks of slippage and fake tokens.