What is Slippage?

Slippage is the difference between the expected price of a cryptocurrency transaction and the actual price at which it executes, occurring when market conditions change between the time an order is submitted and when it is processed on the blockchain, resulting in a less favorable price than anticipated.

This price discrepancy happens primarily due to two factors: low liquidity in trading pools that causes larger orders to move prices significantly as they execute (price impact), and market movement during the delay between transaction submission and confirmation, which can range from seconds to minutes depending on network congestion and gas fees paid.

In decentralized exchanges using automated market makers, slippage is particularly pronounced because prices are determined by mathematical formulas based on pool ratios rather than order books, with larger trades causing more significant price movement along the bonding curve, making trade size a critical factor in execution quality.

Traders typically set slippage tolerance parameters that specify the maximum acceptable price difference they're willing to accept, with transactions automatically reverting if slippage exceeds this threshold, creating a tradeoff between execution certainty and price protection.

Managing slippage has become an important consideration in DeFi trading strategies, with various approaches including breaking large orders into smaller transactions, using aggregators that route across multiple liquidity sources, timing transactions during periods of lower volatility, and selecting trading pairs with deeper liquidity to minimize price impact and achieve better execution.