What Is “Slippage” and How Does It Affect Arbitrage Trading in a Pool?

Slippage is the difference between the expected price of a trade and the executed price. In a liquidity pool, large trades cause high slippage because they significantly alter the ratio of tokens, moving the price along the bonding curve.

Arbitrageurs must factor in slippage, as it reduces their profit margin and limits the size of the trade they can profitably execute before the pool's price aligns with the external market.