When trading in cryptocurrencies, one of the most dominant jargon is ‘slippage’ that day traders face several times. Slippage is actually the price difference between the crypto trading expected or ideal price and the executed trading price. One can go through what is slippage in crypto to have a better grasp of the term and then read this article to know the reasons one must consider slippage:
#Reason 1 – Slippage is unavoidable
Seasoned crypto traders and enthusiasts know what is slippage in crypto; that is why they understand that slippage is an inherent part of trading. The crypto market depth tends to be weaker than it is in traditional financial markets, thus increasing the frequency of price volatility and slippage more. So, it is a good enough reason to consider it before starting to trade.
#Reason 2 – Market movement is volatile
Anyone who has invested in crypto even for six months has a clue that slippage occurs when the cryptocurrency market moves suddenly during the few seconds between when a particular order had been placed, and when it had been executed by a broker or on a cryptocurrency exchange. As evident as the volatility of crypto market movement, so is the inevitability of slippage, so day traders must strategize before jumping into action.
#Reason 3 – Action-packed crypto space
As soon as traders get to understand what is slippage in crypto, they will make more informed decisions. As a foundational rule, everyone in the crypto space knows it is action-packed, and one can actually minimize their exposure to slippage by conducting trade during the most active hours while opting for highly liquid markets (preferably those with low volatility). Hence, for adapting successfully to the proactive crypto space, it is important to consider slippage.
#Reason 4 – Chanced better prices
However surprising it sounds, slippage can actually be both positive and negative. Also, it is possible to mitigate the aftermath of slippage by simply utilizing guaranteed stops and limits on crypto trading. The reflex action for any crypto trader when they know they can get positive and negative while minimizing slippage effects would be to consider slippage. What’s more, crypto traders can also sometimes get a better price for their trade than they could have planned or expected if they adhere to limits, stops, and chanced better prices. Therefore, one must thoroughly consider slippage while trading.
How to avoid slippage?
Often when many traders don’t know what is slippage in crypto, they tend to make losses and even stop to trade at a crucial hour when they could have multiplied their profits. Although it can occur anytime during cryptocurrency trading, it usually happens more when the market has high volatility. Also, when a relatively large order is being executed, and there isn’t a lot of volume at the chosen price for maintaining the particular bid/ask spread, here is where it profusely occurs. Therefore, crypto traders must necessarily remember the following tips to stay away from slippage:
- Crypto trading in markets that have low volatility and high liquidity can greatly limit their exposure to slippage. This happens because low volatility implies that the price is less inclined to change quickly, and high liquidity ensures that there are a lot of active market participants who can accommodate the other side of one’s trades.
- Use a slippage calculator to understand the metrics of your crypto trading before you proceed with transactions.
- One can limit their trading to hours that experience the highest volume of activity since liquidity is highest, and there are better chances of the trade getting executed quickly at the requested price.
By now, you must’ve understood what is slippage in crypto. Nevertheless if you by any chance face slippage in any crypto trading platform, you should not stop yourself from investing in cryptocurrency because you might lose the chance to invest in a better investment opportunity.