How Does a High Slippage Tolerance Enable “Slippage Exploitation” Attacks?
A high slippage tolerance gives a front-runner a large window to exploit. If a user sets a 10% tolerance, a front-runner can execute a sandwich attack, knowing the victim's trade will execute even if the price is moved up to 10% against them.
This wide tolerance allows the attacker to execute their preemptive trade, let the victim's trade move the price significantly, and then execute their profitable sell, all while the victim's trade is guaranteed to succeed at a highly unfavorable price.
Glossar
Slippage Tolerance
Mechanism ⎊ Slippage tolerance, within cryptocurrency, options, and derivatives trading, defines the maximum acceptable difference between the expected price of a trade and the price at which the trade is actually executed.
Maximum Recommended Slippage
Limit ⎊ Maximum Recommended Slippage represents a quantitative limit, typically expressed as a percentage, defining the greatest acceptable deviation between a trade's expected price and its final execution price.
Slippage Exploitation
Exploit ⎊ The phenomenon of slippage exploitation within cryptocurrency derivatives, options trading, and related financial instruments represents a strategic asymmetry arising from transient market inefficiencies.
High Slippage Tolerance
Tolerance ⎊ High slippage tolerance, within cryptocurrency and derivatives markets, signifies an investor’s or trading system’s capacity to accept price discrepancies between order execution and the anticipated price.