What is Slippage in Cryptocurrency?

Understanding Slippage in Cryptocurrency Trading can be a very confusing place for beginners. One minute you’re swapping tokens on a DEX like Raydium or UniSwap, and the next, you’re looking at a failed transaction or a price that’s way off what you expected. What’s going on? The problem here is many times something called slippage. But don’t worry, I’m here to break it down in plain English, no crypto jargon required.

Simple Real-World Analogy for Slippage

Imagine you’re at a farmer’s market, and you want to buy a basket of apples. The seller tells you it’s $10 but by the time you pull out your wallet,the price has jumped to $15! Annoying, right? That’s slippage in a nutshell.

In crypto, slippage is the difference between the price you expect to pay for a token and the price you actually pay when the trade goes through. This happens because prices on DEXs like Raydium or UniSwap are constantly changing. When you hit “swap,” there’s a tiny delay before the transaction is confirmed. During that time, the price might move. Sometimes a little, sometimes a lot.

Why Does Slippage Happen?

Two words: supply and demand.

DEXs use something called an automated market maker (AMM) system to set prices. AMMs use pools of tokens instead of relying on buyers and sellers to match orders (like on traditional exchanges). The price of a token is determined by how much of it is in the pool relative to another token.

When trading volume is high, like during a big market move or a new token launch, the pools get drained or filled quickly. This causes the price to swing dramatically. If you set your slippage too low, your transaction might fail because the price moved beyond what you were willing to accept.

How to Adjust Slippage in Your Wallet

If you’re using wallets like Phantom or MetaMask to trade on a DEX, you’ll see a slippage setting but it takes some searching. Here’s how to change it:

Phantom Wallet:
- When you’re about to swap tokens, look for the settings icon (usually a gear or slider).
- You’ll see a slippage tolerance option. The default is often 0.5% or 1%.
- Increase this percentage if you’re trading during high volatility. In times of desperation I have seen slippage settings all the way up to 7%!
MetaMask:
- After connecting to a DEX, click on the “Swap” button.
- Open the settings menu (three horizontal lines or a gear icon).
- Adjust the slippage tolerance. For volatile tokens, you might need to set it to 2% or higher.

This image shows the Phantom Wallet interface, with the slippage tolerance setting prominently highlighted. Slippage is a crucial setting for traders using decentralized exchanges (DEXs) like Raydium and UniSwap, as it determines the acceptable price difference during high-volume trades. Adjusting slippage correctly can help prevent transaction failures and minimize risks like front-running by bots. — Phantom Wallet – Slippage Setting is Highlighted in Red

Why High Slippage Can Be Risky

Setting a high slippage tolerance can make your trade go through, but it also opens the door to something called front-running. Evil front running bots will ruin your day, especially if you don’t break your buys up into smaller buys.

Front-running happens when bots monitor the mempool (a waiting area for pending transactions) and see your trade. If they see you’re willing to accept a higher price, they can jump in front of your transaction, buy the token first, and then sell it back to you at a higher price. It’s like cutting in line at the farmer’s market and then selling you the apples at a markup. Sneaky, right?

How to Balance Slippage and Risk

During Calm Markets:
- Stick to a low slippage setting (0.5%–1%). This minimizes the risk of overpaying.
During High Volatility:
- Increase slippage to 2%–5% to ensure your trade goes through. But be cautious—this increases the chance of front-running.
Use Limit Orders (If Available):
- Some DEXs offer limit orders, which let you set a specific price for your trade. This eliminates slippage entirely, but not all platforms support it yet.

Slippage is just part of the game when trading on DEXs. It’s not inherently bad. It’s just a reflection of how dynamic and fast-paced crypto markets are. The key is to understand it so that you can adjust your settings accordingly. Be sure to stay aware of the risks, especially during high-volume periods.

So next time you’re swapping tokens and see that slippage setting, you’ll know exactly what to do. And hey, if a bot tries to front-run you, at least you’ll know why your apples just got more expensive.

A surprised customer at a farmer’s market holding money for apples, but the price sign has just changed from $10 to $15. Another customer in the background buys at the lower price while the vendor looks indifferent. The scene visually represents slippage in cryptocurrency trading. — Slippage Made Easy

S Taylor is a crypto trader with five years of experience, having navigated a wide range of market dynamics and witnessed numerous scams firsthand. As a former victim of scams, S Taylor turned their focus to blockchain forensics and Solidity Smart Contract development, gaining deep technical expertise in the field. With a unique insider’s perspective, they’ve been involved in various crypto projects, where they’ve seen how developers can exploit vulnerable investors.

S Taylor is also the published author of Meme Coins Made Easy, a comprehensive guide that teaches beginners about cryptocurrency and how to identify and avoid common scams. S Taylor is dedicated to sharing valuable insights and helping the crypto community stay informed and safe.

Disclaimer: This article is for informational purposes only and should not be considered legal, tax, investment, or financial advice.