Spread Slippage refers to the difference between the expected execution price of a crypto trade and the actual price at which it is filled, specifically due to changes in the bid-ask spread during order processing. This typically occurs in volatile markets or with large order sizes, impacting the final cost of transactions in crypto investing, RFQ, and institutional options trading.
Mechanism
When a market order is placed, the system attempts to fill it at the best available bid or ask price. If the order size exceeds the available liquidity at that price, or if market conditions shift rapidly, the order may consume multiple price levels within the order book. This causes the average execution price to deviate from the initial best price, widening the effective spread paid by the trader.
Methodology
Mitigation strategies involve utilizing limit orders, employing smart order routing to access multiple liquidity pools, and using algorithmic execution strategies that break large orders into smaller segments. Monitoring market depth and volatility indicators is also crucial. This methodology aims to minimize unexpected costs and optimize trade execution for institutional participants in dynamic crypto markets.
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