Recently, I’ve been chatting with some traders and found that many people don’t have a deep understanding of the concept of slippage. Especially for frequent traders, if you don’t understand how slippage occurs, your costs can unknowingly increase significantly.

Simply put, slippage is the difference between the expected price when you place an order and the final transaction price. Particularly when using market orders, due to market volatility or insufficient liquidity, you might execute at a price higher or lower than expected. I’ve seen cases where someone places a large order, and the cost ends up several points higher than anticipated, and this is the reason why.

The bid-ask spread is also a key factor affecting slippage. A simple way to understand it is the difference between the highest price a buyer is willing to pay and the lowest price a seller is willing to accept. The more liquid the trading pair (like BTC, ETH, SOL), the smaller the spread, and the lower the risk of slippage. Conversely, less liquid altcoins tend to have larger slippage.

How to deal with it? I usually use a few methods. First, split large orders into smaller ones, which can significantly reduce the impact of slippage. Second, set a slippage tolerance—most exchanges support this, for example, setting it at 0.5% or a custom value—so that orders won’t execute unexpectedly when the price moves beyond the acceptable range. Another approach is to use limit orders instead of market orders; although it may take longer to fill, it ensures your transaction occurs within a controllable price range.

Another often overlooked point is that slippage can sometimes work in your favor. If during order execution the price moves in a favorable direction, you get positive slippage, which is like getting a better deal. However, this situation is relatively rare.

Balancing slippage tolerance is very important. Setting it too low can lead to order failures or delays, while setting it too high might result in unexpectedly high prices. It requires flexible adjustment based on your trading style and market conditions. My advice is that frequent traders must understand the slippage mechanism so they can make more rational decisions and minimize unnecessary trading costs.