What is slippage?
Slippage refers to the difference between the expected price of a trade and the actual price at which the trade is executed. Slippage can occur in any market and is particularly prevalent in fast moving markets, such as cryptocurrencies.
Slippage often happens due to:
- Market volatility: rapid price fluctuations can lead to situations where a trader’s order cannot be filled at the expected price
- Order size: large orders can cause large slippages as they impact the market significantly, especially in less liquid markets
Slippage leads to higher trading costs and traders may miss out on profitable opportunities due to these unfavorable execution prices.
How does slippage protection work?
WOO X offers slippage protection as a mechanism to protect traders from excess slippages from market orders.
When a market order is submitted, the system snapshots a price limit based on the selected reference price and slippage thresholds. If the executed price reaches or exceeds the price limit for buy orders, or falls below the price limit for sell orders, the order will be partially executed, and any remaining portion will be canceled.
For buy orders,
Price limit = Reference price * (1 + Slippage threshold)
For sell orders,
Price limit = Reference price * (1 - Slippage threshold)
For spot instruments, the reference price is BBO mid price and the slippage thresholds can be set between 1% and 10% in 1% increments, with a default of 5%; and for perpetual instruments, traders can select between mark price and index price, and the slippage thresholds can be set between 1% and 10% in 1% increments, with a default of 3%.
Slippage protection is enabled by default for both spot and perpetual instruments, providing immediate safeguards for all users. However, users can customize the slippage protection settings to match their trading preferences.
Benefits of slippage protection?
Slippage protection offers several key advantages across various trading scenarios:
| Trading scenarios | Benefits |
| High-volume traders | Helps prevent excessive losses caused by large slippages due to outsized order sizes or an illiquid order book. |
| Manual traders | Protects against "fat finger" errors that can occur when placing market orders, which may lead to unexpected order book wicks and unfavorable fill prices. |
| Traders in volatile markets | Acts as a safeguard against volatility, ensuring that traders are not significantly impacted by rapid price fluctuations. |
How do I customize my slippage protection settings?
You can customize your slippage protection settings by navigating to the trading settings in your account. Here, you can select your preferred reference price and adjust your slippage threshold. Note that slippage protection is enabled by default, but you can choose to turn it off if desired.
FAQs
Q: Can slippage protection prevent all instances of slippages?
While slippage protection significantly reduces the risk of executing orders at highly unfavorable prices, it may not eliminate all instances of slippage, especially during extreme market conditions. Additionally, slippage protection only applies to market orders created directly by users and does not cover market orders triggered by algorithmic orders, such as stop market or TP/SL orders.