What is slip page?

The term "slippage" or "slide" is a term that every trader should know. It is a term to keep in mind in each operation that is carried out because, otherwise, it can mean significant losses in profits. 

Un slippage is something very simple: it is the difference between the price at which you want to enter or exit the market and the price at which the operation was executed within an exchange. This price difference can be for or against your forecasts. 

The cause of this difference is mainly due to the level of liquidity of the market where you are participating. The higher its liquidity, the lower the risk of slippage, and the lower the liquidity, the higher the risk. This is an important thing to keep in mind, but it is not the only element that affects our operations.

A concept to keep in mind

Thus, for example, we are facing a negative slippage when the exit price of your trade affects the result of your trade. For example, if you want to buy BTC at a price of €5000 with the aim of getting 1 BTC (in case that is its value), you place the trades but the price at which the trade is executed is €5500, then you will be before a negative slippage, because your goal (obtain 1 BTC) has not been met.

The same can happen with a sale. If you are in a market with a strong downtrend, you will want to exit with a price that limits your losses. For example, if you entered the market with the BTC price at €10.000 and it is currently at €11.200, you would want to exit at a value that you do not lose, targeting the exit at €11.000. 

In this case, you can place a sell order at €11.000, but if the exchange faces an avalanche of selling, with prices rapidly pushing down the value of BTC, you will likely find your trade either not executed or executed. with a negative slippage, when executed with a lower value than desired. 

Without a doubt, this is a huge problem, one that can affect you in different ways, so you must know very well the tools you use to carry out your operations. 

Without distinction of spaces

Now, another point to keep in mind with slippage is that it is an event that affects both centralized and decentralized exchanges. In fact, decentralized exchanges tend to have more problems of this type for a very clear reason: the low liquidity of their pools. 

Let us remember that a DEX carries out its operations thanks to the liquidity that exists in the decentralized pools that it manages. If these pools have a large amount of cryptocurrencies and tokens (they have a high level of liquidity), the operations will be carried out quickly and with minimal slippage. But, if the liquidity is small, then the slippage skyrockets and you may even be in a situation where you simply cannot make the trade.

In centralized exchanges it is easy to see this problem if we buy/sell currency pairs with very low liquidity.  

In addition to this, the problem can be amplified if the tokens are in the middle of pump & dump operations (where prices vary very quickly and there are a lot of entry and exit operations). 

Slippage and spread, differences between both concepts

At this point, you have to ask yourself: Isn't slippage the same concept as spread? The truth is that both concepts are similar but the background of both is different: 

1. Slippage: It is a price variation that you cannot foresee or predict.
2. Spread: It is the price difference between the ask (sale) and bid (buy) that is applied to our operations in an exchange and that is clearly shown in the orders that you place.

How can I avoid slippage?

Avoiding slippage is not impossible, or at least, it is not impossible to minimize its effects. Among the tips you can follow for this are:

1. Do not trade at times of high volatility. A good example of this we could see very recently in the crash of UST and Luna. The people who were trading in these markets at the time were affected not only by the crash but also by the volatility and slippages that appeared in the midst of this whole situation. 
2. Avoid markets with low liquidity. If you are going to make an exchange, watch the levels of liquidity and activity of the same in the exchange. If you see an order book with few trades and limited liquidity, then you should prepare for slippage, especially if you make a large trade. 
3. Learn about the platforms and the tools they offer. A good way to avoid slippage is to use the tools to avoid falling into this type of situation. For example, if you plan to make a purchase/sale on a centralized exchange, know how the platform's purchase/sale orders work (Limit Orders, Market Orders, Stop-Limits, among others). In the case of decentralized exchanges, many of them have acceptable slippage selectors, to configure it and carry out operations within an acceptable margin (eg Uniswap, has this option, as well as its derivatives).