How Does Slippage Occur, and How Can It Be Mitigated in Arbitrage Trading?

Slippage occurs when the execution price of a trade differs from the expected price, often due to low liquidity or high market volatility. In arbitrage trading, slippage can significantly reduce or even eliminate profits.

It can be mitigated by trading on high-liquidity exchanges, using limit orders instead of market orders, and breaking large orders into smaller ones. Arbitrageurs should also factor in potential slippage when calculating the profitability of a trade.

Additionally, using sophisticated trading algorithms that can quickly adapt to changing market conditions can help minimize the impact of slippage.