How Does ‘Slippage’ Affect Large Trades in a Liquidity Pool?
Slippage is the difference between the expected price of a trade and the executed price. In a liquidity pool, large trades consume a significant portion of the available assets, causing the ratio to change dramatically, which in turn causes the price to move unfavorably.
High slippage results in a worse execution price for the trader, making large treasury transactions more expensive.
Glossar
Worse Execution Price
Result ⎊ A Worse Execution Price than anticipated occurs when the final filled price of a derivatives trade deviates negatively from the quoted or expected price, typically due to market impact, adverse selection, or poor routing choices.
Large Trades
Execution ⎊ Large trades, within cryptocurrency and derivatives markets, represent order flow significantly impacting short-term liquidity and price discovery, often originating from institutional investors or high-frequency trading firms.