Slippage Mechanics
Slippage mechanics refer to the difference between the expected price of a trade and the price at which the trade is actually executed. In digital asset markets, slippage occurs when there is insufficient liquidity at the desired price point to fill a large order completely.
When a large sell order hits an order book, it consumes available buy orders at progressively lower prices, resulting in an average execution price that is worse than the initial market price. This is particularly pronounced in decentralized exchanges using automated market makers, where price impact is determined by the size of the trade relative to the pool size.
Understanding slippage is crucial for traders executing large positions to avoid unexpected losses during high volatility.