What is Slippage?

How it works

If a token's order book has $1,000 of sell orders at $1.00 and $5,000 of sell orders at $1.05, a $3,000 market buy will fill the first $1,000 at $1.00 and the next $2,000 at $1.05. Average fill: $1.033. You "expected" $1.00 but paid 3.3% more — that's slippage.

On centralized exchanges, slippage is small for liquid pairs (BTC/USD, ETH/USD) and grows with order size. On DEXs using automated market makers, slippage is calculated mathematically: it depends on what fraction of the pool's reserves you're buying. A swap that consumes 1% of the pool moves the price ~2%; a swap that consumes 10% moves it ~20%.

Example

You want to swap 10 ETH for USDC on a Uniswap pool with $5M of liquidity:

• 10 ETH at $3,400 = $34,000 trade against $5M = 0.68% of pool
• Expected slippage: ~1.4%
• You set slippage tolerance to 2% — meaning the swap will fail if you'd lose more than 2%, protecting you from sandwich attacks

Same swap against a thinly-funded pool with $200k liquidity:

• $34,000 / $200k = 17% of pool
• Expected slippage: 30%+
• The swap is essentially infeasible at any sane setting

Why it matters

Slippage compounds with fees and is often larger than fees on illiquid pairs. The practical rules:

• Check pool depth before swapping. Most DEX UIs show you projected slippage before confirming.
• Split big trades. Five $2,000 trades have less total slippage than one $10,000 trade because each operates against a partly-replenished pool.
• Use aggregators. 1inch, Matcha, Jupiter, Cowswap split your trade across multiple DEXs and find the best total execution.
• Set sane slippage tolerance. Too tight (0.1%) and trades constantly fail in volatile markets; too loose (5%+) and you eat avoidable cost or, worse, become bait for sandwich-attack bots.
• Centralized exchanges hide slippage in the spread. A "no-fee" exchange like Robinhood embeds its take in a wider bid-ask spread — the math is the same, just less transparent.

For very small trades (under $500), slippage is usually irrelevant. For larger ones, it's often the dominant cost — bigger than the gas, bigger than the protocol fee.