What is Slippage and How to Avoid Slippage?

What is Slippage

Slippage is a price gap between the requested order and the execution.

There are several factors responsible for slippage. Slippage can occur when there is market volatility or when the market is illiquid. Besides, abnormal slippage happens when there is price manipulation. The exchange could do it intentionally or hackers manage to access the system.

Here is an example: You want to place a BNB buy order of $3,000, given that the best ask price for BNB is $300. When the transaction is completed, you realize that there is only 9.8 BNB in your wallet. The 0.2 BNB difference (10 BNB expected minus the actual 9.8) is a result of slippage.

How to avoid Slippage

There is a positive correlation between order size and slippage level. If you want to minimize the costs”, it is better to reduce the order size before execution. In case you are able to invest a small amount of money, a purchase in uncertain times might not be a bright idea. In short, do not place an order if you are not ready to bear additional costs.

Obviously, when you have been around for a long time and understand the risk that comes with trading, set your slippage at an acceptable rate. Below is an instruction on how to set the slippage manually on PancakeSwap.

Step 1: Enter the amount of BNB you want to swap for BARMY

Step 2: Click on the cog icon (marked red in the picture) and enter the appropriate slippage rate.

See the example below.

The default slippage is 1%. If you adjust it to 5%, you agree that the slippage rate will be in the range of  4%- 6%. Your trading will stop automatically if the slippage falls out of this range.

There is indeed a trick to help you complete the transaction at 1% slippage: Adding “.00” to the amount of the token swapped.

 

The last tip to avoid additional transaction costs is to pay attention to the Price Impact (see the picture below). If the price impact is too high, then manage to purchase on other exchanges so that you can save a lot of money.

As market volatility is inevitable, you should always be cautious about slippage so as to calculate potential transaction costs. The best way to mitigate the risk of price variance is actually to wait until the movement is more flattening – it should then be easier to purchase the desired tokens at the price you prefer.

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