What is Slippage? How the German explanation of the price difference works.

Question

When trading on crypto exchanges, it often happens: You place an order, want to buy or sell at a certain price, but the actual execution price differs. This price deviation is called slippage. In this article, we explain slippage in German – what it is, why it occurs, and how you can control it.

Why does Slippage occur?

Slippage occurs when there is a gap between the desired price and the actual execution price. This mainly happens with market orders when the market is volatile or there is not enough liquidity to fill your order at the expected price.

Especially with larger trading volumes, it may happen that the available liquidity is not sufficient and your order is partially executed at several different price levels. The result: The average execution price is above or below your original target price.

Understanding the Bid-Ask Spread

Closely related to Slippage is the concept of the Bid-Ask-Spread (. This is the difference between the highest price that buyers are willing to pay )Bid ( and the lowest offer price from sellers )Ask (.

This range varies depending on:

Market liquidity: Higher trading activity leads to tighter spreads
Volatility: In turbulent market phases, the spread increases.
Trading volume: Assets with high trading volume like Bitcoin typically have lower spreads.

Practical Example of Slippage

Imagine you place a market order to buy 10 Bitcoin at the target price of 100,000 USD per coin. However, the liquidity in the order book is limited. Your order will therefore be executed as follows:

3 Bitcoin at 100,000 USD
4 Bitcoin at 100,050 USD
3 Bitcoin at 100,100 USD

Your average purchase price is therefore about 100,050 USD instead of the expected 100,000 USD. This additional 50 USD difference per coin corresponds to the Slippage – a direct cost effect for your trade.

Control by Slippage Tolerance

On modern exchanges, especially on decentralized platforms and DeFi protocols, you have the option to set a maximum Slippage tolerance. This prevents your transaction from being executed at unfavorable prices.

Important: Setting a tolerance that is too low may result in transactions failing or being delayed. Conversely, a tolerance that is too high carries the risk of having to trade under worse conditions. Finding the right balance is crucial.

Strategies to Minimize Slippage

There are several proven methods to reduce the negative effects of Slippage:

Fragmenting large orders: Instead of placing a large order all at once, you split it into several smaller orders. This significantly reduces the pressure on the order book and leads to better average prices.

Using Limit Orders: Unlike market orders, which are executed immediately, limit orders allow you to set a specific price or better. While execution may take a bit longer, you have full control over your price level.

Monitor Liquidity: Before trading, you should check the current market conditions. In phases of low liquidity or high volatility, Slippage is more likely.

Decentralized vs. centralized exchanges: On DEX platforms and DeFi protocols, liquidity can sometimes be limited, which is why Slippage can be more pronounced there. An analysis of the available liquidity beforehand helps immensely.

Positive Slippage – The Other Side of the Coin

Slippage does not always have a negative effect. If market prices move in your favor during the execution of your order, you can even benefit from it. This positive slippage occurs when your trade is executed better than you expected.

Conclusion

Slippage explained in German means: It is the unavoidable price difference between your planned and actual trading price. To be successful as a trader, you should internalize this concept and actively manage the slippage tolerance. By intelligently splitting orders, using limit orders, and closely observing market liquidity, you can minimize slippage and reduce your trading costs. This is especially important on decentralized exchanges and in DeFi investments, where slippage can be more pronounced.