Slippage Risk
risk type
Slippage Risk occurs when the final execution price of a trade differs from the initially expected price. This typically results from high volatility, thin liquidity, or delays in confirmation. Slippage is especially common in decentralized exchanges (DEXs) and automated market makers (AMMs), where large trades can significantly move the price curve within a liquidity pool. Unexpected slippage can reduce profitability or trigger failed transactions, particularly when slippage tolerance settings are not properly configured.
Use Case: Slippage risk helps traders understand why expected trade values differ from actual results, especially in fast or illiquid DeFi markets.
Key Concepts:
- Slippage Tolerance ÔÇö User-defined margin of price deviation before canceling
- Liquidity Depth ÔÇö How much volume a pool can absorb before price shifts
- Front-Running ÔÇö When bots exploit price gaps to induce more slippage
- DEX Trading ÔÇö Prone to more slippage than centralized exchanges
Summary: Slippage risk is the price discrepancy between a tradeÔÇÖs expected and executed price. ItÔÇÖs a critical factor in DeFi and AMM trading, especially for large or fast trades. Managing slippage tolerance can help minimize losses or failed transactions.