Slippage is one of the most common terms in crypto trading. Sliding is done in different modes and one Unwanted surprise It is considered for traders. Slipping can be both good and bad for you. Therefore, you should fully understand this important topic and avoid jeopardizing your transactions. Slippage is one of the important topics that you should pay special attention to in digital currency trading. But what exactly is slippage and what role does it play in digital currency transactions? In this article, we will introduce Slippage and everything you need to know about it. Therefore, we invite you to stay with Valex exchange in the rest of this article.
What is slippage?
Slippage is a condition that occurs in investment markets and affects it. This situation occurs when the expected price for the trade is completely different from the price at which the trade is executed. Slippage can happen in any period, but most often occurs when there is a lot of volatility in the market. Also, this situation happens when a big deal is done by investors, but there is not enough volume to do the deal at the set price. In such a situation, it is said that slippage has occurred. Be careful that slippage occurs in all financial markets, including the stock market, crypto, forex, bonds and futures.
How does slippage occur?
When traders enter their orders into the exchange, trades are bought or sold at the best possible price. The price of a currency in the crypto market can change quickly, which makes it possible to slip every second from the start of the transaction to its end. The result obtained is likely to be equal to, favorable to, or less than the specified price.
For example, let’s assume that the price offered for Solana digital currency in an exchange is set at $15 and $15.10. On the other hand, you place an order worth 10,000 solana tokens to be executed at a price of $15.10.
The final result can be equal, favorable or lower than the desired implementation price. In general, three types of slippage may occur for this order:
- Neutral slip: Neutral slippage occurs when you place your order and the trade trades at the set price of $15.10. In this case, the transactions will be done according to your wishes and no slippage will occur.
- positive slip: Positive slippage occurs after you place your order and the best price is swinging. In such a situation, the best price reaches $15.05. It means that the best price is 0.05 dollars less than your asking price. In such a situation, it is said that positive slippage has occurred and it saves 500 dollars.
- Negative slippage: In a negative slippage, the best price of the currency before placing the order increases to $15.20. In such a situation, an additional $0.05 will be added to the token’s value for each token, or a so-called negative slippage of $500 will be incurred.
What are the reasons for the increase and decrease of slippage?
All financial markets consist of two groups of buyers and sellers. Both of these groups play a very important role in keeping the market going and there should be a balance between them. Otherwise, the market will suffer from fluctuating problems. If the number of buyers and sellers is not equal, the orders will not be executed completely and this will cause slippage.
In fact, market volatility and low liquidity are the two main factors causing slippage in the market. Market fluctuations cause a sudden change in the spread (spread: the best offer and sale price). The price of digital currencies changes under the influence of various factors, one of the most important of them Turnover Is. So, if this amount is less than the required amount, it will cause extreme fluctuations and slippage in the market.
The volume of transactions is considered as an important indicator for liquidity in the market. Liquidity allows traders to have full access to their assets and, as a result, can perform their transactions at a higher speed. If you see the market conditions in such a way that the trading volume is extremely low and the liquidity is low, be sure that the percentage of slippage will increase. Therefore, it can be said that market fluctuations and liquidity are two factors that cause slippage to rise and fall.
How to reduce the effect of slippage in our transactions?
As we mentioned, slippage occurs in all financial markets and avoiding it is inevitable. However, there are several simple strategies that you can use to reduce the impact of slippage in your trading. These solutions include:
Trading in low-risk markets
The first strategy to reduce the impact of slippage in trading is to trade in low-risk markets. A low-risk market means a market that has little volatility and instead has high liquidity. In such a situation, the number of traders increases and you can do your transactions more calmly. Be careful to avoid trading during critical market times. It is better to let the market take its course so that you can trade without falling into the trap of slippage.
Determining profit and loss limits
Another effective way to avoid the risk of slipping is to use stop loss. This process allows you to insure your trades and exit at the set price. In fact, you have to determine at what prices the transaction will end when doing transactions. This will ensure that the order is filled at the specified price and avoid slippage.
Avoid trading in special market conditions
Usually, each market has its own rules and regulations. Most financial markets have less volume of transactions on holidays, i.e. Sundays, and trading in such conditions is not ideal at all. Also, you should not trade in situations such as federal meetings, interest rate determinations, and important events. Because the market may change direction after the end of these events and cause you trouble. So you can avoid slippage by avoiding trading in certain market conditions.
Make small transactions
Avoid large volume transactions. Try to break your trades into smaller orders. In fact, you can place your orders in different positions. You should also be careful not to make transactions larger than the volume available in the exchange in question. By doing these simple things, you can avoid the impact of the slip.
What is the usual percentage of slippage?
The usual percentage of slippage, which is called slippage tolerance, is an important and influential issue on traders’ transactions. Percent Slip tolerance It is set based on a percentage of the total value of the transaction. The digital currency exchange allows its users to manually adjust the slippage tolerance level. The slip tolerance rate is set between 0.10 and 2% by default. You can change the percentage by using the manual adjustment feature.
Slippage and its importance in digital currency transactions
Slippage is one of the important and influential modes in financial markets. This happens in all financial markets and there is no way to stop it. This issue affects traders’ transactions. Therefore, traders should minimize its percentage. In this article, we introduced slippage and checked what the most important slippage control solutions are. If you care about your assets and want to make better deals, you should take slippage seriously. Of course, you don’t need to worry because by using the solutions we introduced in this article, you can make your transactions smarter and avoid exposure to risk.
What is slippage writing? Introducing the concept of slippage in the digital currency market for the first time in the Wallex blog. appeared.
