Have you ever heard of slippage? Do you want to know what it is, how to avoid it, and how it works in cryptocurrency trading operations? Read this content until the end and understand once and for all what this term means.

Understanding slippage is part of a fundamental process for anyone who wants to be successful in the cryptocurrency market: understanding the risks of the market. Situations like these can happen, and only with knowledge will you be able to manage the risks, use protection strategies , and avoid surprises about the procedures needed to avoid greater losses.

What is slippage?

“Slip” means slippage or slippage in English. Thus, when used in the cryptocurrency universe, slippage can be understood as the occurrence of a difference between the value presented and used to send an asset trading order and the price at which such order was actually executed .

In other words, between the time the user sends the buy or sell order and the time the action actually takes place, the price undergoes an unexpected change. This is slippage.

It is worth noting that this change can happen individually. This means that two people can be trading the same crypto, on the same exchange, and only one of them will experience slippage.

In most cases, losses end up occurring, and the value of crypto assets falls during the bug. However, in some cases, the variation may be beneficial to the investor, generating a positive change for their operation.

What are the main reasons that lead to slippage?

Next, we will talk about the main reasons responsible for generating slippage. In addition to these, it is worth remembering that some reasons that generate such a process are related to the person who is operating, in these cases, we can mention the bad connection between the user and the platform or even the delay in completing the operation .

Low liquidity

When an asset still has little trading and low market capitalization, we usually find low liquidity for operations involving it. In practice, low liquidity is related to the amount of available offers that a crypto has on the currency market, and, as a consequence, the low amount of trading.

Slow Execution

Slow execution is related to the various systems involved in the crypto trading operation. The system of a given currency, for example, may be facing some technical difficulty, and this ends up reflecting on the performance of Blockchain operations .

The crypto broker's system may also execute orders slowly and cause slippage, as can technical issues on other trading platforms.

As we said, even connection problems and slowness on the user's computer can cause slippage. These are the most common factors . A cable connection is recommended to avoid this type of problem.

What are the consequences of slippage?

For the simplest crypto buying and selling operations, the loss may be “mild”, but there is still a monetary loss to be considered.

For those who trade on a larger scale, with higher values, and require more frequency and precision, the loss can be considerably high.

Furthermore, in businesses such as flash trading, where one crypto is bought and sold to buy another crypto for the difference in price in a short space of time, a change in the values ​​of these assets can be very harmful to traders. This is because the value predicted at the time of purchase, which is the main reason for making it, changes during the time interval between the issuance and execution of the purchase order, resulting in a different result than planned .

For this reason, it is essential to have a secure platform and understand how the market works. After all, you need to consider all the risks before carrying out such operations. Next, we will talk about ways to avoid or mitigate this slip-up so that you know what to do.

How to avoid slippage in the cryptocurrency market?

Slippage is not something that can be predicted, but, as we said, it can be mitigated and avoided through some specific actions:

Trade highly liquid assets

The most traded assets are those with the highest liquidity, that is, with the greatest supply on the market. This reduces the risk of slippage, since buy and sell orders, as they are frequent , tend to occur immediately.

In the cryptocurrency market, the main way is to trade the most sought-after assets, such as Bitcoin . The most popular currency is also the most traded.

Avoid moments of high volatility

As the cryptocurrency market is always open for trading, the habit of staying tuned to the news to project them into possible fluctuations in the values ​​of cryptos can be interesting, but there are factors that influence the volatility of popular currencies, such as Bitcoin, more.

These moments can be found when there is urgent news about the coins and their platforms. In these cases, it is common to find a high volume of trading, which can cause disruption to the order book.

Operating with small batches

As we mentioned at the beginning, when the buying or selling volume of an asset is very high, a distortion in its price can occur, favoring slippage. This can occur especially if the asset has low liquidity.

Therefore, it is recommended to trade fractionally , to ensure that prices are compatible and also to check whether the asset has good liquidity.

Operate with a stable connection

As previously mentioned, the most common cause of slippage is connection failure or instability. An Ethernet connection, which is made using a cable of the same name that connects the computer to the modem, tends to be more stable and faster.

Use a reliable and secure Exchange

In addition to what we have said, to avoid slippage, or even reduce its effects, it is essential to have a secure, reliable and stable platform. This security allows you to operate your cryptocurrencies on a brokerage that does not have a system that crashes all the time and generates constant losses.

In this way, with these considerations in mind, the chances of slippage do not cease to exist, but they become smaller and more moderate.

Investing in the cryptocurrency market can be even more advantageous when you are aware of the possible pitfalls that can occur with the assets, as this way you can prepare in advance to avoid them.

So, now that you know what slippage is, you also know that you need to take it into account when carrying out operations with cryptocurrencies, especially if your objective is very short-term .