What is slippage?
Slippage is a term best described when a trader completes a Market Order that is larger than the amount of buyers/sellers on the other side of the trade.
When placing an order, it's important to realise that for you to purchase a cryptocurrency, there needs to be someone selling on the other side of the trade.
To understand this we first need to define the Bid-Ask Spread
• The Bid Price represents the maximum price that a buyer is willing to pay for an asset.
• The Ask Price represents the minimum price that a seller is willing to take for that same asset.
• The difference between Bid and Ask, is the spread. Spread, is a key indicator of the Liquidity of the asset.
Though Spread are always changing, Cryptocurrencies with the most market participants are subject to Lower Spreads, and inversely cryptocurrencies with less market participants are prone to Higher Spreads.
How to Avoid Slippage
Limit Orders can be used as a way to reduce the impact slippage can have on your investments. Unfortunately given the volatility of some crypto markets, slippage is something that is unavoidable. And should be taken into account, when trading assets with a larger spread.