What Is "Slippage" and How Does It Affect the Cost of Gamma Hedging? ▴ Learn

What Is “Slippage” and How Does It Affect the Cost of Gamma Hedging?

Slippage is the difference between the expected price of a trade and the price at which the trade is actually executed. It affects the cost of Gamma hedging by increasing the total transaction cost.

When a market maker frequently trades the underlying asset to adjust their Delta (Gamma hedging), slippage on each trade accumulates, making the overall cost of maintaining the hedge significantly higher than anticipated.

What Is the Mathematical Formula Used to Calculate Slippage as a Percentage?

What Is ‘Slippage’ in DEX Trading and How Does It Affect Large Orders?

How Does the Volatility of the Underlying Asset Affect the Cost of Delta Hedging?

How Does the “Order Book Depth” Relate to the Potential for Slippage?