How Is Slippage Calculated in a High-Volatility Cryptocurrency Trade?
Slippage is the difference between the expected price of a trade and the actual execution price. In high-volatility crypto trades, it is calculated as the absolute difference between the mid-price at the time the order was submitted and the final average execution price.
High volatility causes rapid price changes and wider spreads, increasing the likelihood of an order being filled at a less favorable price, thus increasing slippage.
Glossar
Expected Price
Price ⎊ Within cryptocurrency derivatives, options trading, and financial engineering, price represents the prevailing market valuation of an underlying asset, reflecting a complex interplay of supply, demand, and anticipated future performance.
Centralized Exchange
Intermediary ⎊ This refers to a regulated or semi-regulated entity that acts as a trusted third party, facilitating the custody of client assets and the matching of buy and sell orders for cryptocurrency and associated derivatives on a centralized order book.
High Volatility
Instability ⎊ High volatility in cryptocurrency, options, and derivatives signifies amplified and accelerated price movements, exceeding historical norms and creating substantial risk exposures for market participants.
Rapid Price Changes
Condition ⎊ Rapid Price Changes describe sudden, high-magnitude movements in the spot price of a cryptocurrency, characteristic of low-latency, globally accessible digital asset markets.
Cryptocurrency
Asset ⎊ Cryptocurrency, within the context of options trading and financial derivatives, represents a digitally native asset class exhibiting characteristics of both fiat currency and commodities, yet fundamentally distinct due to its cryptographic security and decentralized nature.
Decentralized Exchange
Architecture ⎊ A decentralized exchange (DEX) fundamentally diverges from traditional order book exchanges through its reliance on smart contracts and blockchain technology to facilitate peer-to-peer trading, eliminating the need for a central intermediary.