Slippage

How slippage occurs

Several causes:

• Price impact. Large orders move the market by consuming order-book or pool liquidity.
• Volatility. Prices move during the time between submission and execution.
• Latency. Slow execution misses the price you intended.
• Front-running. Bots execute ahead of your trade, moving the price.
• Spread widening. Wide bid-ask spreads produce inherent execution costs.

Each contributes differently in different markets.

Slippage in DEXes

A specific case:

• AMMs price assets via formulas based on pool reserves.
• Trading shifts the reserves, moving the price.
• Larger trades produce more price impact.
• Smaller pools are more sensitive to slippage.
• Slippage tolerance lets users set max acceptable.

Most DEX UIs let users set slippage tolerance directly.

Slippage tolerance

Setting on DEX swaps:

• Default 0.5-1% typical for liquid pairs.
• Higher for volatile or thin markets — sometimes required to execute.
• Tight slippage protects against sandwich attacks and unfavorable execution.
• Too tight — transactions revert; gas wasted.

Setting appropriate tolerance is a key DEX skill.

Slippage in equity markets

Different mechanics:

• Order book depth determines slippage on market orders.
• Liquid stocks have minimal slippage on typical retail orders.
• Illiquid stocks can have significant slippage.
• Large institutional orders use specific execution algorithms.

For most retail equity trading on liquid stocks, slippage is minimal.

How to reduce slippage

Several patterns:

• Use limit orders rather than market orders.
• Trade liquid markets — major pairs, established stocks.
• Smaller trade sizes — reduce price impact.
• DEX aggregators — split orders across pools.
• Private mempools — avoid front-running.
• Off-peak hours — sometimes lower volatility.

Sophisticated traders combine multiple techniques.

What individuals should know

For active traders:

• Account for slippage in expected returns.
• Use limit orders for non-trivial sizes.
• Watch for thin markets before trading.
• Set DEX slippage carefully — too loose loses money to sandwich attacks; too tight reverts trades.

Slippage is one of the largest costs of active trading, often invisible because it's bundled into execution prices rather than reported as a fee.