What Is ‘Slippage’ and How Does Low Liquidity Exacerbate It?

Slippage is the difference between the expected price of a trade and the price at which the trade is actually executed. It occurs when market conditions change between the time an order is placed and when it is filled.

Low liquidity exacerbates slippage because there are fewer tokens available at the desired price level. A large market order in a low-liquidity pool will move the price significantly, resulting in a much worse execution price for the trader.

This is a common issue on decentralized exchanges (DEXs) with thin order books.