The principle of slippage in cryptocurrency trading 🪙 is related to...
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the difference between the expected transaction price and the actual price at which it is executed. This phenomenon is particularly noticeable in conditions of high volatility 📉📈 or low liquidity 💧.
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Why slippage occurs:
1. High volatility: Cryptocurrencies like Bitcoin (which is currently priced at $100,000 🤑) are characterized by rapid price changes. While the order is being executed, the price may change ⏱️.
2. Low liquidity: If the order volumes in the order book are insufficient 🏦 for execution at the desired price, part of the order is executed at a less favorable price 😟.
3. Types of orders:
Market orders: Slippage is most characteristic of them ⚡, as they are executed at the current market price.
Limit orders: Help avoid slippage, but there is a risk that the order will not be executed 🚫.
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How it manifests:
If a trader places a market order to buy 1 BTC at the current price of $100,000 💰, but there is not enough liquidity at that level, part of the order may be executed at $100,100, $100,200, and higher 📊. As a result, the average purchase price will be higher than expected.
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Types of slippage:
1. Positive: When the actual price is better than expected (for example, lower when buying) — a rare occurrence, but nice! 😊
2. Negative: When the price is worse than expected — occurs more often and causes disappointment 😔.
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How to minimize slippage:
1. Use limit orders: They allow you to set a maximum purchase price or a minimum selling price in advance ✅.
2. Trade on liquid markets: Pairs with high trading volumes are less susceptible to slippage 📈.
3. Avoid trading during high volatility: For example, during news releases 📰 or significant events.
4. Reduce order size: Large volumes are harder to execute at a single price 🪙.
5. Use "stop-limit" orders: For additional control over the execution price 🎯.
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Conclusion:
Slippage is an inevitable part of trading, especially in dynamic markets like cryptocurrencies 💹. However, the proper use of tools ⚙️ and understanding of market structure 🛠️ can help minimize its impact on your profits 💵.