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What Is Slippage in Crypto Trading? And How to Avoid It
- Slippage in crypto trading refers to the difference between the expected price of a trade and the actual price at execution, impacting both profits and losses.
- Slippage can be positive (favorable) or negative (unfavorable) depending on whether the execution price is better or worse than expected.
- Causes of slippage include market volatility, low liquidity, order execution speed, network congestion, and large trade sizes in small markets.
- Calculating slippage involves comparing the expected price with the executed price using a simple formula.
- Ways to avoid slippage include using limit orders, trading during peak liquidity, avoiding major announcements, dividing large trades, and setting slippage tolerance.
- Slippage tolerance on decentralized exchanges helps protect traders by defining the acceptable price range for trade execution.
- Slippage manifests differently on centralized exchanges (CEXs) and decentralized exchanges (DEXs) due to their order-matching mechanisms.
- While slippage cannot be entirely eliminated, understanding its causes and implementing strategies can help minimize its impact on trades.
- Slippage varies across platforms, but traders can use tools like limit orders, liquidity monitoring, and slippage settings to navigate its effects.
- High gas fees in blockchain transactions can indirectly contribute to slippage by causing delays in execution, especially on DEXs.
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