What Are Some Strategies Traders Use to Minimize Slippage When Executing Large Orders?
Traders use several strategies to minimize slippage. One common method is to break a large order into smaller pieces and execute them over time, reducing the immediate price impact.
Another strategy is using 'limit orders' instead of 'market orders', which specify a maximum or minimum price for the trade, preventing execution at unfavorable prices. More advanced strategies include using algorithms like TWAP (Time-Weighted Average Price) or VWAP (Volume-Weighted Average Price), which automate the process of breaking up orders to execute them as close to the average price as possible over a set period.
Glossar
Using Limit Orders
Execution ⎊ Limit orders, within cryptocurrency, options, and derivatives markets, represent instructions to buy or sell an asset at a specified price, or better, contingent upon market conditions.
Average Price
Calculation ⎊ The Average Price represents the volume-weighted mean execution price of an underlying asset or derivative contract over a specified interval, crucial for settlement procedures in many crypto derivatives markets.
Minimize Slippage
Definition ⎊ Slippage refers to the difference between the expected price of a trade and the actual price at which the order is executed.