Slippage trade is a condition when there is a difference between the expected price and the price at which the trade was executed.
This is generally the case when you use a market order as an order type to buy or sell an asset. Trading slippage can happen at any time, but this condition is usually caused by high market volatility and/or low liquidity.
A high level of market volatility is a condition when there is a sudden change in price in the period between the confirmation and execution of a trade.
In addition, slippage in crypto usually occurs due to liquidity or conditions when there is not enough available crypto at the quoted price to meet demand. Usually, large demand quantities will be more prone to slippage due to liquidity issues.
Get to know Slippage Tolerance.
In addition to slippage trade, there is also the term slippage tolerance which generally means the amount of slippage or price difference that investors can accept. This term refers to the tolerable slippage of the coin/token price.
Using this feature, you can set a limit on the acceptable price movement of the token, either higher or lower than the price displayed on the interface.
Generally, the slippage tolerance is specified as a percentage of the total swap value. For example, some users might set the slip tolerance at 2%, 5%, or even 10%.
Slippage Tolerance Function
For crypto investors, of course, it is important to set a slippage tolerance limit. Here are some important slip tolerance functions to know.
- Setting Maximum Number of Slippage
The function of the first slippage tolerance feature is to set the maximum amount of slippage that investors can accept on the exchange platform.
This will significantly help investors plan and create investment portfolios to maximize the profits achieved.
- Avoid High Slippage Payouts
Another function is that it can be used to avoid too high slippage payments.
In this case, if the slippage occurs is greater than the specified slippage tolerance, the transaction will certainly not happen.