What Is Slippage in Crypto?
As of June 2022, Bitcoin had traded at the lowest levels since December 2020. Of course, there are multiple factors at play, just like anything else in the market.
When trading cryptocurrencies, you must first understand, “What is slippage in crypto?”. Your comprehension of slippage ultimatley determines if you will gain or lose, on your investments.
So when should Bitcoin investors be concerned, if at all? Well, it’s a slippery slope when trading crypto, and here is why.
What Is Slippage in Crypto?
In laypeople’s terms, the difference between what a trader expects to earn, and the actual price, is slippage. When buying and selling cryptocurrencies, this is common.
If you are selling or buying Bitcoin, you likely have a specific price in your mind. The challenge is that the crypto market moves quickly. As a result, the cost can change from the time when you enter your order in the market, to when your trade completes.
Therefore, cryptocurrency investors could end up selling or buying at a lower or higher price than expected. The difference you expect between the price you thought you had and what you end up settling for is called “slippage.”
How Does Slippage Work?
Slippage is more than just the difference you see between the intended price and the market price. There are two categories:
These categories significantly affect a Bitcoin investor’s trading and strategies.
When buying Bitcoin, slippage is positive if you find the actual price is lower than expected, giving a trader a better rate for buying. Conversely, if the actual price ends up higher than expected, slippage is negative, leaving traders at an unfavorable buying rate.
For selling Bitcoin, you find slippage is positive if the actual price ends higher than expected, meaning that traders have more to gain from the sale. Conversely, when the confirmed price ends lower than expected and the trader incurs a loss, then slippage is negative.
Slippage can happen with any market, not just crypto, like in the stock market. Unfortunately, crypto is a more significant concern because of its high volatility. Depending on the market’s movement, Bitcoin investors have a lot to gain, or lose.
Why Slippage Happens
Beyond the market volatility, another reason that slippage occurs is because of the low liquidity of some cryptocurrencies. Because of their lower popularity, some currencies do not trade as frequently as others, thus leading to lower liquidity.
When there is low liquidity with cryptocurrency, this means that there are few buyers and sellers. Therefore, if you place a big order, your price changes significantly. This price change happens because your order will fulfill multiple people’s limit orders.
As a result the price is pushed farther from the point it was initially.
You are likely already familiar with this if you are a current crypto trader. That is because a crypto trading platform will typically allow you to add a percentage to an order in terms of the transaction value. The percentage is what you feel is acceptable for the slippage cost, called the slippage tolerance.
They will not complete a trade that you make unless the actual transaction’s value is more than your slippage tolerance. The way to minimize your risk of a negative slippage is for you to run a slippage calculation. You will want to note the cost of slippage.
Calculating Slippage in Crypto
It is important that you know your losses and how to limit them. Usually, you can use this formula to calculate slippage:
$ of slippage/ (limit price – expected price) x 100 = slippage %
Many trading platforms will show slippage as a percentage. They could also display it as a dollar amount. For this formula, remember that it assumes the trader uses a limit order when trading, not a market order.
Taking the amount of slippage you will allow into consideration helps to make a better exit position when trading crypto.
Bitcoin ATM Transactions
An “automated teller machine” (ATM) is not the same as a Bitcoin ATM, which can confuse some people. Instead, an automated teller machine lets a banking customer physically deposit, withdraw, or transfer funds for their bank account.
Instead, Bitcoin ATMs produce blockchain-based transactions. It sends cryptocurrencies to the digital wallet of the user. Often, it will use a QR code.
Like an automated teller machine, it is a standalone device or kiosk. Anyone with proper identification can use it to buy or sell Bitcoin.
Unlike an automated teller machine, a Bitcoin ATM does not dispense cash. Instead, they are kiosks that connect to the Bitcoin network. Customers can purchase crypto tokens by depositing cash.
Bitcoin ATMs do not connect to any customer’s bank account.
Better Than Banking
John McAfee, the founder of McAfee, says, “You can’t stop things like Bitcoin. It will be everywhere, and the world will have to readjust. World government will have to readjust.”
We agree, John McAfee!
Understanding “what is slippage in crypto” can help you make informed decisions with your Bitcoin ATM transactions. With Byte Federal Bitcoin ATMs, we want to help you take control of your finances.
That is why we offer the best Bitcoin ATM network nationwide! Find a location near you.