When investing, you are usually in a situation where the selling and buying prices differ from what you expected. This price difference is called Slippage. But how do you avoid Slippage? Let’s find out more!
Slippage when trading is a condition with a price difference between the expected price of the trade and the price when the trade is executed.
Slippage will occur more often when you use market orders as an order method in buying or selling crypto assets.
Although Slippage can happen anytime, high market volatility or low liquidity are the leading causes of It.
Apart from Slippage, there is also the term Slippage tolerance, which is the amount of Slippage or price difference that investors can accept.
The Slippage tolerance feature allows you to set the limit for token price movements that you can accept, whether it becomes higher or even lower than the displayed price.
Generally, Slippage tolerance is set as a percentage of the total swap value. Every investor has different slippage tolerance; some put their slippage tolerance at 2%, 5%, or even 10%.
Then, how do you avoid Slippage in crypto?
Buying and Selling
When trading, investors are advised to enter the desired transaction value limit. For example, when you want to buy Bitcoin at Indodax, use the limit order feature.
This feature will set a standard minimum and maximum price limit, so purchases beyond the total price will not be executed. This is also known as an “enter strategy.” You calculate the capital that can be issued with the profit you aim for.
The same thing applies when you want to sell crypto assets. This situation is known as an “exit strategy,” or the stage when you have set a sales profit target.
As previously explained, the limit order feature can reduce your losses caused by Slippage because you can enter the maximum nominal for your purchase.
For example, you enter a nominal value of Rp. 2,000,000, then your purchase will automatically be at Rp. 2,000,000 or below.
However, this feature provides limits for competitive traders. Because it can allow you to lose the moment of buying at the best price value, this goes back to the traders wanting to use Slippage or being a competitive trader waiting for the best price to appear.
Do you understand now what Slippage is and how to avoid it? See you again in the next video!