When placing a trade on a decentralized exchange (DEX), after approving the transaction, a user may find that they paid 3% more than the price displayed just two seconds ago. The system does not issue errors or warnings, providing a worse deal than expected. This gap is called slippage in the crypto space.
Slippage occurs on all exchanges and costs traders more than they realize. According to Kaiko Research data collected by SEI, total execution costs across all exchanges reached $2.7 billion in 2024. Understanding this phenomenon is critically important for serious traders, as it is one of the most direct ways to prevent losses with every trade.
Essentially, slippage represents the difference between the price a trader expected to pay for a token and the price at which the trade was actually executed. This gap can amount to a few cents for a major coin or several hundred dollars for a low-liquidity altcoin, and it accumulates quickly with multiple operations.
It is important to note that slippage is not a fee charged by the exchange; it is a natural market phenomenon reflecting real-time supply and demand dynamics during order execution. Cryptocurrency markets experience this phenomenon more intensely due to their volatility and liquidity fragmentation.
On a centralized exchange (CEX), when placing a market order, the exchange executes it against available orders in the order book. If the order volume is large enough to exhaust the best price offers, it moves to the next price level and beyond. As a result, the average execution price ends up being worse than the best price seen in the book. Data from Binance Research, cited in SEI's slippage guide, shows that retail traders on average face 0.4% more slippage compared to institutional traders, mainly due to incorrect order sizing and execution timing.
The mechanism differs on decentralized exchanges (DEXs), such as Uniswap or PancakeSwap, because there is no order book. Prices are set by Automated Market Makers (AMMs) using the constant product formula: x * y = k. When a large trade occurs relative to the pool size, the ratio of tokens within that pool shifts, and the price automatically moves against the trader. The larger the trade relative to the pool, the stronger the negative impact on the price.
Not all price deviations work against the trader. There are two types, and the distinction matters when analyzing trade history. Negative slippage is what most traders encounter: the order is executed at a worse price than displayed. This happens when prices change against the trader between the moment of request and execution, or when the order size consumes several price levels.
Positive slippage means the trade was executed at a better price than expected. For example, a sudden drop in the token price right before confirming a buy order allows paying less than the stated price. Similarly, a sharp rise in price upon selling allows receiving more. Although positive slippage in the crypto space is real, it is rare.
Most traders encounter high slippage in crypto assets without fully understanding the reasons. The main factors fall into two categories.
Firstly, there is high market volatility. Prices in crypto assets change very rapidly. The interval between swap confirmation and block confirmation on the network can be mere seconds, but in a volatile market, token prices can change significantly in that time. If, for instance, Bitcoin rises by $500 in seconds, market orders are executed at prices significantly higher than the quoted rate.
During the NFT boom of 2021–2022, slippage analysis from FinanceFeeds noted that traders regularly faced high slippage in crypto assets of 10–15% when exchanging tokens in small pools during periods of instability. One simple way to mitigate this cause is to monitor cryptocurrency price forecasts and avoid swaps during major news or market events.
The second main reason is low liquidity on DEXs. This is especially true for pools of small tokens. AMMs calculate prices based on pool ratios. A small pool means that even a moderate order significantly shifts the ratio, causing a strong price impact. If you prefer platforms that help avoid certain DEX-specific risks, consider alternatives with deep liquidity and fewer MEV concerns.
On DEXs like Uniswap and PancakeSwap, you must set an acceptable slippage threshold before executing a swap. This indicates the maximum price deviation the user is willing to accept by the smart contract. Understanding the acceptable slippage tolerance is critical for DEX users, as a default compromise value is often used.
According to slippage analysis from MC² Finance, the Uniswap interface uses automatic slippage ranging from 0.1% to 5%, depending on trading conditions and the network. PancakeSwap defaults to 0.5% for most pairs and 1% for others. The logic for setting slippage in PancakeSwap follows the same principle.
Recommended ranges depend on the traded asset: 0.1–0.5% is suitable for highly liquid pairs like ETH/USDC or BTC/USDT, where deep pools ensure minimal price change. 1% is a safe middle ground for most standard DEX swaps. 3–5% should be used cautiously for low-liquidity tokens or during high volatility, as a wider threshold increases the risk of a 'sandwich' attack. 10% and above is only recommended for new token launches or micro-cap pools, as the slippage limit practically ceases to function as a protective measure in such cases.
The set slippage limit serves as the primary barrier against overpaying. It can be viewed as the ceiling price for a buy order. If the market moves outside this limit before the transaction is confirmed, the trade is correctly canceled instead of executing at a price the user did not agree to. Managing slippage exposure starts precisely with setting the acceptable threshold, which is the only variable under the user's control on a DEX.
No strategy will completely eliminate slippage, as it is a structural feature of all liquid markets. However, the correct combination of measures can reduce the average slippage from a significant fixed cost to a manageable baseline.
The most effective way to reduce slippage costs is to trade the most liquid pairs on the most liquid venues. Deep order books and large liquidity pools absorb the order with minimal price impact. Choosing the right venue is just as important as the trade itself.
It is also recommended to break down large orders, since a single $500,000 trade in a pool with a Total Value Locked (TVL) of $2 million can significantly move the price against the trader. Instead of market orders, use limit orders. Market orders accept any available execution price, whereas limit orders set a maximum buying price or minimum selling price, and the order executes only if these conditions are met.
Ultimately, slippage in the crypto space is the inevitable cost of executing a trade in a market where prices are constantly changing and liquidity is never perfectly distributed. Every trader pays it. Those who understand the origin of this phenomenon and shape their trading habits to minimize it incur the smallest losses.
It is necessary to set appropriate thresholds, trade liquid pairs, split large orders, and use limit orders wherever possible. Furthermore, always check cryptocurrency price forecasts and market conditions before entering a position during periods of high volatility. These habits do not eliminate slippage, but they prevent it from becoming the largest trading expense.
Trading cryptocurrency using leverage has become very popular in recent years. However, this concept can seem complex for beginners. This guide aims to explain as simply as possible what leverage is, how it functions in the crypto sphere, and when it should be used and when it should be avoided.
Essentially, leverage in crypto trading is the practice of using borrowed funds to increase your buying or selling power. This can be viewed as a temporary loan taken from an exchange. Thanks to these borrowed funds, you can execute trades with a much larger asset volume than what you actually own.
In standard spot crypto trading, if you have $1000, you buy Bitcoin worth $1000. If the price of Bitcoin increases by 10%, you earn $100. When using crypto leverage, you can use those same $1000 as collateral to open a $10,000 position (10x leverage). With such a larger trade size, if the price of Bitcoin rises by the same 10%, your profit will be $1000. Nevertheless, higher profit potential comes with increased risks.
To understand how leverage works in crypto, you need to grasp the lending model from the exchange to the user. Exchanges that provide funds for leveraged trading are commercial entities, so they do not do it for free. They require collateral, called Margin, to ensure they do not incur losses if your trade fails.
Margin is essentially the crypto assets you deposit as collateral to open a large position. There are two types of margin, and it is important to know both. The first is Initial Margin, which represents the minimum amount of equity required to open a leveraged position. The second type is Maintenance Margin, which is the minimum capital that must remain in your account to keep the position open. If your account balance drops below this threshold due to market losses, you risk a margin call.
Leverage is expressed as a coefficient, which is the multiplicative effect. It shows how many times your initial capital is multiplied. When you see 5x, it means you are trading $5 for every dollar. At 10x, you are trading an amount 10 times greater than your starting amount. 100x leverage is usually limited to Bitcoin trading, where a $100 deposit can open a $10,000 position. A very high multiplier has a dual effect: while huge profits can be made, the risks are also great.
100x leverage implies that any move against you of 1% will lead to the loss of 100% of your collateral. Furthermore, only some leading platforms for high-leverage crypto margin trading, such as MEXC, offer such a multiplier.
Leveraged cryptocurrency trading is available not only in a bull market; it can also be used in a bear market. This is where long and short positions come into play. In a long position (Longing), you borrow funds to buy an asset hoping its price will rise, and then sell it back, repay the loan, and receive the difference. In a short position (Shorting), you take an asset, such as BTC, and sell it on the spot market. If the price falls, you repurchase it at a lower price, deliver the BTC to the lender, and keep the profit.
A key aspect of leveraged trading is risk management in different modes. Most platforms offer two modes. In Isolated Margin mode, the risk is limited to a specific trade; if that trade fails, you only lose the percentage allocated to that position. In Cross Margin mode, your entire account balance is used as collateral. While this prevents liquidation during short-term price drops, a more significant decline can automatically empty your wallet.
There are several ways to approach crypto leverage trading. Depending on the chosen exchange, you can trade various instruments. Crypto margin trading is the most common form, where you borrow funds directly from the exchange or other users to buy more spot crypto. This is often used for short-term speculation and involves daily interest payments on the borrowed amount.
Cryptocurrency futures and perpetual contracts are used to buy or sell an asset at a specific price at a given future time. In the crypto sphere, perpetual swaps offer additional advantages because they have no expiration date and are tied to the true price of Bitcoin or Ethereum via a funding rate. Options give you the right (but not the obligation) to buy or sell at a specific price. Although this is more typical of traditional finance, options are also available in the crypto sphere. CFDs (Contracts for Difference) are simply betting on price changes, where you never own the underlying currency.
Liquidation means the end of the game in leveraged cryptocurrency trading. Since exchanges are businesses, they cannot assume all the trader's risks. When an exchange detects that your trade is losing money and has reached the depletion point of the Initial Margin, it automatically closes your position. This closure is called liquidation. Upon receiving a liquidation notification, you understand that you have lost 100% of the collateral you allocated to that trade. Exchanges do this to protect their own funds from losses on your position and to prevent you from having a negative balance.
If you do not want to risk the risks associated with leveraged trading, you can engage in spot trading. While using leverage, you borrow to trade large volumes, whereas in spot trading, you directly buy or sell the crypto asset at current prices. The main differences between these methods are as follows: beginners are recommended to start with spot trading, while leverage is suitable for experienced traders willing to accept the associated risks.
After understanding the principle of leverage, let's look at how to trade it on an exchange, such as Binance. You need to choose a reliable exchange with high liquidity to avoid scam candles that cause liquidations. Then, you need to deposit collateral (USDT or BTC) into the Futures or Margin account. Next, select the margin mode and the desired leverage level, with beginners advised to start with small values, such as 2x or 3x, avoiding promises of 100x. It is crucial to set a stop-loss to automatically close the trade upon reaching an acceptable loss. You must also constantly monitor the trade and adjust the stop-loss to a profit zone if the result is positive. It should be noted that maintaining an open trade may require paying a fee every 8 hours.
Advantages include the ability to earn huge profits from small price fluctuations (1-2%) and using a small capital to access large trade sizes. Additionally, BTC holders can use leverage for short selling to hedge their portfolio during a market crash. Disadvantages include the high volatility of crypto leverage, where one small market move can zero out the balance. Also, the stressful state of watching a leveraged position and the need to master complex concepts such as funding rates, mark prices, and liquidation prices require a steep learning curve.
Beginner traders are strongly advised to approach leveraged trading with extreme caution. The process should only begin when you have a proven trading strategy and a disciplined approach to risk management. Crypto leverage is a tool for professional growth, not a get-rich-quick scheme. If you are just starting, stick to spot trading until you understand market cycles. When moving to leverage, start with 2x and always use a stop-loss to minimize risks.
