What Is “Slippage” and How Does It Affect the Final Liquidation Price for a Large Position?
Slippage is the difference between the expected price of a trade and the price at which the trade is actually executed. For a large liquidation order, slippage is significant because the order size exceeds the available liquidity at the best price level on the order book.
The execution engine must fill the order at successively worse prices, pushing the final liquidation price further away from the mark price. This can result in a loss greater than the remaining margin, increasing the chance of negative equity for the exchange.
Glossar
Large Liquidation
Trigger ⎊ Large liquidation events in cryptocurrency derivatives markets represent a cascading series of forced asset sales initiated when margin requirements are breached across leveraged positions.
Slippage
Variance ⎊ Slippage, within cryptocurrency, options, and derivatives, represents the difference between the expected price of a trade and the price at which the trade is actually executed, stemming from market dynamics and order book depth.
Available Liquidity
Capacity ⎊ Available liquidity, within cryptocurrency and derivatives markets, represents the immediately accessible capital available to execute trades without significantly impacting prevailing prices.
Final Liquidation Price
Price ⎊ The final liquidation price represents the specific market price at which a derivatives position is closed by the exchange's risk engine.
Execution Engine
Orchestration ⎊ An execution engine within cryptocurrency, options, and derivatives markets functions as the core computational component translating trading signals into actionable orders, managing order lifecycle events, and interfacing with exchange infrastructure.
Liquidation Price
Trigger ⎊ The Liquidation Price is the specific market price level at which a trader's margin equity falls to the maintenance margin threshold, causing the exchange or protocol to automatically close the leveraged position to prevent the account balance from falling into negative territory.