Slippage and Impact Cost

Slippage is the difference between the expected price of a trade and the price at which the trade is actually executed. This often occurs when market orders exceed the available liquidity at the best bid or offer, forcing the trade to fill at progressively worse prices.

Impact cost is the measure of how much a specific order size shifts the market price. In low-liquidity crypto markets, even relatively small orders can cause significant slippage, making it difficult for large players to enter or exit positions.

Traders minimize this by using limit orders or iceberg orders to break up large transactions into smaller pieces. Understanding the relationship between order size and price impact is a core component of execution strategy.

High slippage environments are often characterized by thin order books and high volatility. Effective execution strategies prioritize the minimization of these costs to preserve capital.