What Is “Slippage” and How Does Deep Liquidity Mitigate It?
Slippage is the difference between the expected price of a trade and the price at which the trade is actually executed. It commonly occurs in volatile markets or when executing large orders.
Deep liquidity, meaning a large total value locked (TVL) in the pool, ensures that large trades cause minimal movement along the bonding curve. This minimizes the price impact of the trade, thereby reducing slippage for traders.
Glossar
Deep Liquidity
Formation ⎊ Deep liquidity, within cryptocurrency derivatives, signifies a market state where substantial buy and sell orders cluster around the current price, minimizing price impact from individual trades.
Price Impact
Momentum ⎊ The concept of price impact, particularly within cryptocurrency markets and derivatives, fundamentally reflects the immediate effect of a trade on an asset's price.
Centralized Exchanges
Exchange ⎊ Centralized exchanges (CEXs) represent a critical infrastructure within cryptocurrency markets, facilitating order matching and settlement for a diverse range of digital assets, including options and derivatives.
Total Value Locked
Collateralization ⎊ Total Value Locked, within decentralized finance, represents the aggregate value of crypto assets deposited in smart contracts, functioning as collateral for various protocols.
Liquidity Provision
Capital ⎊ Supplying assets to decentralized pools forms the essential base layer for automated trading and derivatives pricing across the digital asset landscape.
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.