Overview
Slippage is the difference between the expected price of a trade and the price actually executed. It is driven by pool depth and trade size in AMM markets. High slippage means a trade moves the market against the trader.
How It Works
In an AMM, the price changes as a trade changes the pool ratio. Large trades relative to pool depth cause significant slippage. Traders can set slippage tolerance limits to prevent unfavorable execution.
Why It Matters
Slippage directly affects the cost of trading, especially for large orders or illiquid pairs. Understanding it helps traders choose venues and sizes wisely. It is a core concept for comparing DEXs and aggregators.
Related Concepts
Slippage is tied to Liquidity Pools, AMM pricing, and DEX Aggregators. It also relates to MEV, since front-runners can profit from predictable slippage.