Overview
Slippage is common in all financial markets but is particularly prevalent in decentralized exchanges with low liquidity. It occurs when the market price moves between the time you submit a trade and the time it is confirmed on the blockchain.
Causes
- Low Liquidity: A large trade relative to the size of the pool will move the price significantly.
- High Volatility: Rapid price changes during the transaction processing time.
Slippage Tolerance
Most DEXs allow users to set a 'slippage tolerance' (e.g., 0.5%). If the price moves more than this amount, the transaction will automatically fail to protect the user from a bad price.