Slippage
Cryptocurrency can be very volatile that causes the prices to change rapidly. When it comes to cryptocurrency trading, slippage is a very important term to understand as it indicates volatility in the market. Slippage is simply the change in price of any cryptocurrency asset, the difference between the price that the buyer is expecting and the market price at the time the trade is executed. The effect of slippage is common in markets with large Bid-Ask spread and is mostly felt when using market order type to buy or sell any cryptocurrency.
For instance, if a trader uses the market order type to buy a particular cryptocurrency at a current price of $1 and the market price changes to $1.5, the trade will be executed at $1.5 which means that the buyer will have few coins than expected. Also if a seller uses the market order type to sell a particular cryptocurrency at a current price of $0.5 and the market price changes to $1, the trade will be executed at $1 which means that the seller would have sold at a higher price.
Positive Slippage and Negative slippage with price illustrations for each.
Positive Slippage
From the name positive slippage it means that it is a favorable situation for the buyer or seller when executing a trade using the market order type. Positive slippage simply means that the change in price at the time the buyer or seller executes a trade is favorable to the buyer or seller.
For Buyer - For instance, if a buyer uses the market order type to buy a particular cryptocurrency at a current market price of $2, and the current market price changes to $1.5, the trade will be executed at $1.5 which means that the buyer will have more coins than expected which favors the buyer.
For Seller - For instance, if a seller uses the market order type to sell a particular cryptocurrency at a current market price of $2, and the current market price changes to $2.5, the trade will be executed at $2.5 which means that the seller would have sold the coins at a higher price than expected which favors the seller.
Negative Slippage
From the name negative slippage it means that it is an unfavorable situation for the buyer or seller when executing a trade using the market order type. Negative slippage simply means that the change in price at the time the buyer or seller executes a trade is not favorable to the buyer or seller.
For Buyer - For instance, if a buyer uses the market order type to buy a particular cryptocurrency at a current market price of $2, and the current market price changes to $2.5, the trade will be executed at $2.5 which means that the buyer will have less coins than expected which does not favor the buyer.
For Seller - For instance, if a seller uses the market order type to sell a particular cryptocurrency at a current market price of $2, and the current market price changes to $1.5, the trade will be executed at $1.5 which means that the seller would have sold the coins at a lower price than expected which does not favor the seller.
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Is there ever a time when both buyer and seller benefits from market orders?
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