In volatile markets, where price changes can happen drastically and rapidly, traders often have to take a different price than what they requested and this is known as slippage.
When it comes to making a cryptocurrency trade on an exchange, a trader will input the price they want to buy or sell at and expect that price to be met in the market. However, this does not always happen as the cryptocurrency markets are volatile and prices move quickly.
When the price a trader requests is not met, this is known as slippage. Between placing the order and the execution, there is a gap where the price of an asset like Bitcoin can shift and cause slippage for the trader. Slippage is not unique to cryptocurrency markets, but it happens more frequently in them - it is an even bigger consideration in decentralized exchanges because of the added volatility there.
Other factors, such as low volume and liquidity also have a role to play in slippage. This is why the phenomenon is often seen with lesser-known altcoins that are not as well established or have as big a market.
There are two types of slippage that can occur - either positive or negative. As you might expect, if the price is lower than what the trader expected for a buy order, this is considered a positive slippage. But, if the trader gets a better rate on their buy order than expected, this is seen as negative slippage. The opposite occurs when it comes to selling orders.
Slippage can be a real curse for frequent traders. These traders can try and combat it by executing market orders and opt to execute limit orders instead since these types of orders don't settle for an unfavourable price.
Slippage is part of the package when it comes to trading crypto, especially when getting more advanced and adventurous - but it is a frustrating aspect of the operation.