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Understanding Slippage

What is slippage? #

Pretty much anyone who has exchanged crypto on a DEX has seen the following messages, which indicate that a transaction is experiencing “slippage”.

Slippage caused by low liquidity

Slippage caused by low liquidity

Slippage occurs when there is a difference between the initial cost of a trade when it is placed and the actual cost when the order is to be executed. For example, I might place an order for 100 SuperCoins at $1 apiece but before it has a chance to be executed, the price may jump to $2, thereby generating a slippage error. Slippage can be caused by multiple factors including low liquidity, low volume and high price volatility, all of which are prevalent in cryptocurrency. Also, there can be both positive and negative slippage. Negative slippage occurs when the price is greater than expected and positive slippage occurs when the price is less than originally selected.

What can I do about it? #

You can’t control slippage, but on any exchange there should be a place on the swap page where you can set the slippage tolerance. When encountering a slippage issue, simply increase the tolerance incrementally until you are able to make your trade. Coins with low liquidity and volume may require a slippage tolerance of 25% or more.

Click the highlighted image to access the settings

Pancakeswap slippage settings

Front running #

If you set the slippage tolerance high enough you’ll see the following error: “Your transaction may frontrun”. This means that a person and/or bot could see your transaction and force you to accept the highest possible price based on your slippage setting. Obviously, frontrunning is to be avoided so the best practice is to keep the slippage low and only increase as needed.

Updated on June 30, 2021
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*Paid Advertisement. Not financial advice. RugDoc is not responsible for the projects showcased here. DYOR and ape safu.