No matter what market you’re trading in, you’ll encounter slippage in different forms out there. Every trader of the market occasionally keeps on encountering this effect of the market that may sometimes lead to a profit and sometimes in a loss. The crypto market is not an exception as this phenomenon happens in this market too. However, in cryptocurrency investments, this is a relatively big problem that may lead to a remarkable loss if not understood properly. To avoid all issues related to this market effect, it’s good to investigate the “What is slippage in crypto and how to avoid it?”
Slippage refers to the difference in the price of any cryptocurrency between the expected execution price and the price at which currency is executed. If you keep going on without taking the slippage too seriously while trading in any of the cryptocurrencies, you may face a remarkable loss. So, it’s good to understand what is slippage in crypto, what are its causes, and how to avoid it. In the later section of this guide, you’ll encounter all these facts. So, let’s move on to explore this beneficial guide.
What is Slippage In Crypto? What does slippage mean?
In the case of cryptocurrency, Slippage is the difference between the prices that one expects to get on the ordered Crypto and the price of actual execution. Slippage may keep the overall revenue flexible in all kinds of trading, however, it’s more problematic in the case of cryptocurrency. To keep the slippage in control, it’s important to learn ‘ What is slippage in crypto and how to avoid it? ‘.
As the assets or credits like crypto are volatile, these may be affected more by the possible slippage. Hence, keep tracking this issue and whenever you notice it, try to find out its possible reason and ways to control it.
Reasons for Slippage in Cryptocurrency
Although different reasons may lead to a price difference between the execution price and expected price, some are prominent. Among those causes that usually lead to this problematic situation in crypto, liquidity and volatility are bolder ones. Let’s discuss both these reasons in detail.
1- Volatility in Crypto
Sometimes, the prices of different cryptocurrencies like Bitcoin (BTC) change rapidly, it’s called the volatility of the crypto market. In such a situation, dealers deal in stocks at different prices that keep on changing regularly. This is one of the major reasons for slippage. When the price of execution changes extensively from the price at which the order entered, it causes a strong blow to the market.
In this way, the investors will not earn the expected revenue from their investments. Despite the dramatic change in prices that has been seen in the last few months, cryptocurrency is still one of the trending investments all over the world. However, volatility in price is necessary to understand for a person who is new in the field.
2- Liquidity in Crypto
Liquidity is another cause of Slippage in the crypto market. Liquidity refers to the availability of a particular cryptocurrency in the market. Due to the newness and lack of stocks, some currencies are not available to the investors at the time they want to invest.
Also, due to the new entry, some currencies may not succeed to be popular. So, this can also lead to a difference in the prices of the crypto at the time of the entry of the order and at the time of auction. Assets with low liquidity may be hard to convert into cash. The reason is the lack of active purchasers of the currency.
The newly invented currencies are more likely to have low liquidity due to a lack of popularity. This means that one will have to wait for the potential buyers to cash out these cryptocurrencies. Moreover, the low competition will lead to a low price of the relevant currency. All this will lead to a slippage in the crypto market.
How do you calculate slippage?
Now you know what is slippage in crypto but let’s calculate it. It’s not always true to claim that the slippage will always lead to a loss. Sometimes, it may result in high revenue too. When you receive a low or worse price than the expected one, it leads to negative slippage that is bad. On the other hand, when you get a better price than you expected on your stock, it will be a positive slippage. After you learnt how to calculate the slippage in crypto stocks, you can measure whether your stock featured positive or negative slippage.
To calculate the slippage, you should learn how to calculate its percentage and dollar amount. However, to get the exact percentage, it’s necessary to get the dollar amount. So, before going for percentage, you should take out the dollar amount of the slippage on your crypto stocks. Here is an easy way to take out the percentage of Slippage.
Percentage Slippage = $ of Slippage / (LP – EP) x 100
Where ‘ LP ‘ shows the Limit Price while ‘ EP ‘ shows the Expected Price. You may know that, in trade, the percentage of any measurement is used. So, it’s necessary to calculate the percentage slippage in the crypto market.
How Does Slippage Work?
Slippage can’t be calculated before the execution of the crypto stock. When the stock is executed and sold out, the selling price shows whether the price is more than expected or lower. So, when one executes his or her stock, it tells him or her whether it’s beneficial or not. If the selling price is lower than expected, it will lead to loss while a higher execution price will result in profit.
Positive Vs Negative Slippage
It is important to know what is slippage in crypto and what is positive and negative. As mentioned above, slippage doesn’t always result in loss, it may prove rewarding too. There are two types of Slippage, positive and negative.
When the execution or auction price falls below your extractions, it shows that the slippage is negative. It will lead to a remarkable loss. On the other hand, when you receive a higher price even more than you expected, it will show the positive slippage. It will be beneficial for the stock owner.
Is high slippage good?
If you trade during the high slippage, it will cost a lot of money. However, you can avoid it by stopping the trade during the high slippage days. In such a case, it will not be an issue for you or your organization.
What is slippage on Coinbase?
Like other cryptocurrencies, slippage on Coinbase is also the difference between the execution or auction price and the price expected for execution. It may also be positive or negative and may lead to reward or loss respectively. You can control the slippage on your Coinbase stocks by controlling their liquidity and volatility. If you control these factors, like all other cryptocurrencies, you can control the slippage to a great extent.
No matter what market are you choosing for trade, slippage will be one of the major issues within that particular market. The crypto market is not an exception to those forums that may be affected due to high or low slippage. So, it’s good to learn ‘ What is slippage in crypto and how to avoid it? ‘ to trade within the market effectively. Moreover, a brief understanding of the facts about this factor will prevent you from many major losses. So, always keep on tracking the new ways to avoid slippage.
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