Slippage in Illiquid Markets

Slippage in illiquid markets is the difference between the expected price of a trade and the price at which the trade is actually executed. In markets with low liquidity, there are not enough buyers or sellers at the current price to fulfill large orders.

Consequently, the trade consumes the available orders in the book, causing the price to move against the trader. This effect is amplified in cryptocurrency during times of panic or low trading activity.

Slippage is a major cost factor for institutional traders and those using high-leverage strategies. It highlights the importance of market depth in facilitating efficient price discovery.

Minimizing slippage is a primary goal of smart order routing and algorithmic execution.