🤷What is Slippage?
Breakdown on what slippage is and how to use it.
Slippage in crypto trading is like the difference between what you expect to get and what you actually get when you buy or sell a cryptocurrency.
Imagine you want to buy a certain amount of a cryptocurrency at a specific price, like $100 per coin. However, when you place your order, the price might have changed slightly, and you end up buying it for $101 per coin instead. That extra $1 per coin is slippage.
Slippage happens because cryptocurrency prices can change very quickly, especially in volatile markets. So, the price you see when you decide to trade might not be the same as the price you get when the trade is actually executed. Slippage can work in your favour, too, if the price goes down before your order is completed, and you end up buying for less than you expected.
In simple terms, slippage is the difference between what you plan to pay or receive and what you actually pay or receive when trading cryptocurrencies due to price changes during the process.
Slippage and Taxes
Tokens often have a Buy & Sell Tax, this tax needs to be accounted for in your slippage when trading. For example, if a token has a 5% Buy & 5% Sell Tax (5/5), your slippage on any trade would need to be a minimum of around 5.5%, this allows for the Tax taken during in the transaction and a small amount of price movement during order execution to avoid failed transactions. A token with no Tax 0/0 is usually traded at 0.5% slippage under normal circumstances. However in BOTH these cases, if the price is moving quickly due to volatility the slippage would need to be increased to cater for larger price % movements and avoid failed transactions and wasted gas. Many DEX's now have an "Auto" slippage option, such as 1inch, this calculates the optimum slippage required for your trade automatically, this is fine to use for most trades if you wish, however it may require extra confirmation steps on the DEX to ensure you are happy with the trade you are getting, best practice is to set it yourself when you get the hang of it!
Slippage and Sniping
Snipers are often targeting hyped launches which usually means significant price volatility at the time of trading. This means they will often need to use significantly higer slippage on their initial trades. It is not unheard of for snipers to use 399% slippage meaning they'd be willing to accept almost a 4x price increase during the execution of their transaction, however this is very risky and you should only attempt this if you are familiar with sniping and know what you are doing!
Snipers are aiming to get a transaction through as early as possible and avoid a failed on at all costs, often being up against many other snipers means although the transaction goes through in seconds, the price can change drastically and they account for this risk with their slippage.
Slippage and MEV bots
To avoid being fisted by MEV bots on your transactions, best practice is to use the minimum amount of slippage possible to get your transaction through. MEV bots hunt for arbitrage opportunities in the mempool and if you use higher slippage than necessary you are leaving yourself open to a Sandwich attack! Read more about MEV sandwich attacks here
Keypoints
👊🏿 The lower your slippage the better, this will get you the closest to the price you are aiming to trade for 👊🏿 Remember to account for Buy & Sell Taxes in your slippage 👊🏿 During volatility and fast moving price action you will often need a higher slippage % to avoid a failed transaction and wasted gas 👊🏿 Snipers use insane slippage, but they only care about getting their transaction through as early as possible and avoiding failures 👊🏿 MEV bots will front-run you and leverage your high slippage to extract value from your trades, check our toolkit for tools to avoid MEV attacks here
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