Slippage on an exchange
- Author
- CRYPTO PORT Editorial
- Published
- Updated
- Reading time
- 4 min
In short
Slippage is the gap between the price you expected and the price you actually got. It widens when the book is thin, when your size is large, and when prices are moving fast. Market orders are exposed by nature, so limit orders and smaller clips are the practical ways to contain it.
Key points
- The gap between expected and actual fill price
- Wider in a thin book and with larger size
- More likely when prices move quickly
- Limit orders and smaller clips reduce the impact
Definition
The difference between the price anticipated when an order was placed and the price at which it actually executed, arising from insufficient book depth or price movement before the order is processed.
A market order names no price, so it consumes resting orders from the best side outward. If the size available at the best price is smaller than your order, the remainder fills at worse levels. Stacked up, that pulls your average fill away from what you expected.
The second factor is timing. Prices move in the brief interval between sending an order and having it processed. In fast markets that gap becomes material. The same applies to thinly traded assets and to hours when fewer participants are active.
The basic remedy is a limit order, which lets you set a boundary on price — at the cost of accepting that it may not fill. Splitting large size into several orders and checking book depth beforehand also reduce the impact.
Watch out for
- · In violent moves, price can jump past a limit order without filling it
- · In thin books, even modest size can slip noticeably
- · When the gap is large, check the breakdown in the execution report