The crypto market is a thrilling and ever-changing arena, with innumerable opportunities for traders to gain an advantage. But one factor that all traders should be cognizant of when conducting buy and sell cryptocurrency is slippage. In this article, we’ll take a more in-depth look at it.
The crypto market is a thrilling and ever-changing arena, with innumerable opportunities for traders to gain an advantage. But one factor that all traders should be cognizant of when conducting buy and sell cryptocurrency is slippage. In this article, we’ll take a more in-depth look at what causes slippage, why it occurs, and how investors can reduce its effects.
What is Slippage in Crypto: In Simple Words About Complex
Slippage is a concept that explains the gap between what traders expect to pay or receive for an asset and the amount they actually buy or sell it for. This discrepancy can occur in any market but tends to be more prominent in swiftly fluctuating ones like cryptocurrency trading. In simple terms, slippage denotes the difference between what a trader wants and ultimately gets when executing their trades.
As a cryptocurrency trader, slippage can bring both good and bad news. Positive slippage happens when you get a better deal than expected but negative slippage is much more common and could have an enormous impact on your financial gains. Negative slippage occurs when the price you are presented with is less favorable than what was predicted.
Why Does Slippage Happen?
Slippage occurs due to the decentralized nature of cryptocurrency markets, with no central governing body that sets prices or carries out trades. Prices are instead set by interactions between buyers and sellers in the market, where an increase in demand leads to a rise in pricing, while an excess of sellers causes a decrease.
In a rapidly shifting market, prices can change in mere moments and it is possible that requested orders may not be completed at the exact cost. This could happen for:
- multiple motives such as network traffic;
- order book depth;
- or trading volume.
For instance, if there are more buy requests than sell orders of one cryptocurrency then its price might surge quickly making sure that a trader’s selling order gets accomplished but at a lower cost than expected.
How Can Traders Minimize Slippage?
To guarantee that your trades are profitable, utilize limit orders on the crypto exchange instead of market orders. A limit order permits you to buy or sell assets at a particular cost or better; hence, you can make sure that your order is completed precisely as expected rather than worry about slippage impacting profits negatively. Not only will this strategy ensure successful trades with minimal loss and maximum gain for the trader but also it opens up more opportunities if improved prices become available in the future.
Slippage can be a tricky matter for cryptocurrency traders, yet with the proper tools and strategies in place, you can have control over your trading profits. Don’t let slippage affect your gains; exploit the many lucrative possibilities that crypto trading has to offer. Regardless of whether you are an