How to reduce slippage when ordering
- Author
- CRYPTO PORT Editorial
- Published
- Updated
- Reading time
- 6 min
In short
Slippage is the gap between the price you expected when you ordered and the price you actually got. The basics for reducing it: use limit orders instead of market orders, split large orders, avoid thin books and quiet hours, and use a slippage tolerance setting where one exists. It cannot be eliminated entirely.
Key points
- A market order fills at whatever the book offers, which can be worse than you expected
- A limit order fixes your price, at the cost of possibly not filling
- Splitting a large order avoids sweeping through the book in one go
- Where a slippage tolerance can be set, state an explicit limit
Definition
The difference between the price you had in mind when you placed an order and the price at which it actually executed. It arises when the book is too thin, or when the price is moving as you trade.
Understanding the mechanism decides the countermeasures. A market order matches against resting orders on the other side, best price first. If your size exceeds what sits at the best price, execution walks into the next price level and the one after, and your average fill comes out worse than the price you first saw. On top of that, the price can move in the moments between placing the order and it being processed.
The most basic countermeasure is to use a limit order instead of a market order. With a limit, you cannot fill worse than your price. The trade-off is that if the market never reaches it, you do not fill at all. Unless you genuinely must execute right now, making limit orders your default removes almost all of the 'that is not the price I saw' accidents.
For large sizes, splitting helps. Sending everything at once consumes several price levels in a single sweep; sending it in pieces and letting the book replenish tends to produce a steadier average. There is no canonical piece size, but comparing your quantity against the size resting at the best price is a useful test — if yours is clearly larger, split it. See 'order book' and 'market depth' for how to read that.
Choosing the asset and the moment is also a countermeasure. Rarely traded assets, quiet hours and the minutes after a major announcement all mean thinner books and more slippage. As a general statement, executing when the book is deep tends to work out better if you are not in a hurry. Exactly when that is, for your asset, is something to observe rather than assume.
DEX swap screens, and some exchange screens, offer a slippage tolerance — the maximum deviation you will accept. Set it wide and you fill more easily but accept worse prices; set it tight and you avoid surprises but see more failed transactions. On a DEX in particular, transactions with a generous tolerance are a known target for sandwich attacks, so keep it to the minimum you need. 'Slippage', 'MEV' and 'How to swap on a DEX' cover the related ground.
Watch out for
- · Slippage cannot be removed entirely; a limit order simply trades it for the possibility of not filling
- · A wide slippage tolerance on a DEX increases your exposure to sandwich attacks and poor fills
- · This article explains execution, not what to trade. It recommends no assets and no positions
Frequently asked questions
Does slippage happen on small trades too?
Yes. Even a small order can slip in an extremely thin book or during a violent move. That said, small trades in major assets with deep books are usually affected very little.