PulseX will likely have low liquidity in the first few months.
This will result in high volatility and lots of slippage when placing trades.
This article will walk you through everything you need to know about slippage in crypto, including what is it, and how to avoid in on DEXs such as PulseX.
In the context of cryptocurrency trading, slippage refers to the difference between the expected price of a trade and the actual executed price.
Slippage = Expected Price - Actual Price
Let's say you want to buy 10 PLS tokens at the current market price of $1 per token. You place a market order, expecting to execute the trade at the prevailing market price.
However, due to slippage, the actual executed price may be slightly different from the expected price. In this case, let's assume there is not enough liquidity at the desired price level, and your order gets partially filled at different prices.
The first 5 PLS tokens are executed at $1 per token, which aligns with your expected price. However, due to insufficient available supply, the remaining 5 PLS tokens are filled at a slightly higher price of $1.10 per token.
As a result, the total executed price for the 10 PLS tokens is (5 PLS * $1) + (5 PLS * $1.10) = $5 + $5.50 = $10.50.
Here, the slippage can be calculated by comparing the expected total cost of $10 (10 PLS * $1) with the actual executed cost of $10.50. The slippage in this example would be $10.50 - $10 = $0.50.
This means that due to slippage, you paid an additional $0.50 more than initially anticipated for the purchase of 10 PLS tokens.
Slippage can work both in favor of or against the trader. In this example, it resulted in negative slippage, where the executed price was worse than the expected price. Positive slippage would occur if the executed price was better than expected, resulting in a more favorable trade.
Slippage tolerance refers to the acceptable deviation or difference between the expected price of a trade and the actual executed price.
Slippage tolerance is the predefined limit or range within which a trader or investor is willing to accept slippage. It represents the maximum acceptable deviation from the expected price. Traders typically set a slippage tolerance to manage the potential impact of price discrepancies during the execution of their trades.
For example, if a trader sets a slippage tolerance of 1%, it means they are willing to accept a deviation of up to 1% from the desired execution price. If the slippage exceeds this tolerance level, the trader may need to reevaluate their trading strategy, adjust their order parameters, or consider alternative execution methods to minimize the impact of slippage.
The ability to change slippage tolerance depends on the specific trading platform or software you are using. Here are general steps that may help you adjust the slippage tolerance:
There are many different ways to minimize slippage:
PulseX will also have limit order capability on PulseChain.
Slippage depends on the size of liquidity pools. If you try another DEX instead, you’ll find other pools with hopefully lower slippage.
You can find liquid DEXs on explorers like DeFiLlama or DappRadar.
If you want to swap $10,000 but there’s only $5,000 of liquidity, find another DEX with $5,000 or more. Splitting orders among DEXs can save over 10% in price impact. For large amounts, they’re worth the extra network fees.
On Ethereum Mainnet, validators prioritize orders with high network fees. If you’re willing to pay more gas, your order can execute at the expected price before liquidity runs out. You pay lower slip than it shows.
If slippage is too expensive, you can try below 0.5%. For smaller coins, you have to decide if it’s worth the risk of failing the transaction and paying network fees. You can set a maximum deadline of 72h on most DEXs to prevent failed orders.
You don't want to be the whale who executes orders like a noob.
Slippage in crypto is one such technical issue to understand if you want to execute smart orders.
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Disclaimer:Please note that nothing on this website constitutes financial advice. Whilst every effort has been made to ensure that the information provided on this website is accurate, individuals must not rely on this information to make a financial or investment decision. Before making any decision, we strongly recommend you consult a qualified professional who should take into account your specific investment objectives, financial situation and individual needs.
Connor is a US-based digital marketer and writer. He has a diverse military and academic background, but developed a passion over the years for blockchain and DeFi because of their potential to provide censorship resistance and financial freedom. Connor is dedicated to educating and inspiring others in the space, and is an active member and investor in the Ethereum, Hex, and PulseChain communities.
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