Simple slippage refers to the difference between an expected trade execution price and the actual price at which the trade is filled. In crypto markets, this phenomenon is particularly common due to inherent high volatility, variable liquidity across trading venues, and network latency.
Mechanism
Slippage occurs when market conditions change between the time an order is submitted and when it is executed. This can be caused by substantial market orders consuming available liquidity at desired price levels, rapid price movements influenced by news, or arbitrage activity. On-chain transactions are also susceptible to network congestion and block confirmation times.
Methodology
Mitigation strategies for simple slippage include employing limit orders, segmenting large orders into smaller units, and implementing slippage tolerance settings within trading algorithms or smart contracts. For systems architects, this means designing trading interfaces that clearly communicate potential slippage and implementing smart order routing across diverse liquidity pools to optimize execution outcomes.
Implementation shortfall is a comprehensive measure of all costs from trade decision to execution, unlike simple slippage which is a narrow measure of price deviation.
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