Market Impact Slippage

Market impact slippage refers to the difference between the expected price of a trade and the actual executed price caused by the size of the order relative to the available liquidity in the order book. In cryptocurrency and derivatives markets, large orders consume the available volume at the best bid or ask prices, forcing the execution to move deeper into the order book to find additional liquidity.

This results in an average execution price that is worse than the initial market price. This phenomenon is critical for margin-based systems because the realized value of collateral during a liquidation event may be significantly lower than the current spot price.

Understanding slippage is essential for quantifying the potential loss during rapid deleveraging events. It is a fundamental component of calculating the true cost of trading large positions.