What Is a Maximum Acceptable Slippage Tolerance and Why Is It Set?
Maximum acceptable slippage tolerance is a percentage or absolute price difference set by a trader, specifying the worst price they are willing to accept for an order's execution. It is set to protect the trader from excessive losses due to unexpected price volatility or low liquidity.
If the execution price falls outside this tolerance, the order is either partially filled or cancelled, preventing significant, unintended transaction costs.
Glossar
Maximum Acceptable Slippage Tolerance
Constraint ⎊ Maximum Acceptable Slippage Tolerance represents a crucial constraint defined by a trader, specifying the largest negative price deviation from the expected execution price they are willing to endure for an order to be filled.
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.
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.
Absolute Price Difference
Magnitude ⎊ This metric quantifies the raw numerical disparity between two distinct price points, devoid of any proportional context.
Acceptable Slippage Tolerance
Risk ⎊ This metric quantifies the maximum permissible negative price deviation between the expected trade price and the actual execution price.