What is slippage?
Traders expect their orders to be filled at the price they’ve chosen, but this doesn’t always happen and is called slippage. Let’s say you’re about to buy something at $99 but by the time you place an order, it’s already risen to $100, forcing you to settle for a higher price.
What causes slippage?
These occurrences can happen at any time, but are most common during periods where markets are volatile. Since cryptocurrency markets are inherently more volatile, we can expect more fluctuations in price and therefore potential for slippage. slippage, however, does not denote a negative or positive movement. There are two types:
Positive slippage means that your order was filled at a favourable price. For example, submitting an order to buy at $100, but it gets filled at $98. Many traders consider these "virtual profits".
Negative slippage means that you bought or sold at a worse price than displayed on the quote, Or worse, you missed the opportunity because price moved against you. It’d be like trying to sell at $110, only for the price to move lower before your order goes through. A market order would at least get you out of the position, but at the risk of selling for say $107.
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Preventing slippage
When buying in large numbers, or trading on small timeframes, fractions of a dollar can make a big difference. Which is why slippage is frustrating to see when margins are already tight.
Some people work around slippage by using limit orders. In effect, the desired price is set and will only be traded on if the asset reaches it. However, this also removes the chance for positive slippage. Not to mention missed opportunities if using a specific strategy.