At some point or another in DeFi I am sure you will come across the term “slippage” at some point or another, if you haven’t already. What is it? What does it mean?
Slippage refers to the difference between the expected price of a trade and the price at which the trade is executed. When using decentralized exchanges, often times the liquidity pools have an algorithm that quickly balances out the funds in each market. This process can sometimes cause the price of an asset to change in between someone starting and finalizing a trade.
It’s important to also point out that sometimes slippage is simply caused by a token that you are trying to trade, having a transactional tax. For example, Jetfuel Finance’s FUEL token, has a 2% transaction tax, that is shared with other holders, however when trying to buy or sell FUEL, you would need to set the maximum slippage to ATLEAST 2%, to cover the tax, however it’s recommended that you set it a bit higher to cover any movement. Anything less than that and your order will fail to execute.
When a trade is executed, the asset is bought or sold at usually the most favorable price for an exchange or market maker. This can result in favorable, equal to or less favorable prices than the intended execution price. Therefor slippage can theoretically be categorized as positive slippage, no slippage or negative slippage.
Decentralized exchanges like Pancakeswap and Hyperswap and others, have tolerance settings, where users are able to set their maximum percentage of price “slippage” or movement, that they are comfortable with, and i’ll show you how that is done next.
When on Pancakeswap’s website, navigate to the trading interface by clicking on “Trade” and then “Exchange”. Once there, you will see the following image on your screen.
You will notice the menu icon, with the three lines, next to the clock looking icon, go ahead and click on that and you will be presented with the following menu;
From this menu, we are able to manually set the slippage tolerance. When some tokens are very young, and have low liquidity, sometimes you may need to increase the slippage to something high enough to allow your trade to go through.
When you set your slippage too low on Pancakeswap, you may be presented with an error message like this;
HyperJump’s menu is almost identical, and when visiting their trading interface, you should be presented with this.
Instead of the menu icon with the three lines, you’ll see a more traditional gear icon, where we’ll be able to change the slippage at.
And when the slippage is too low, HyperSwap will inform you by displaying an error message like this;
1inch exchange has a slightly different look, but functions the exact same way. When you visit 1inch, and switch over to BSC, you will be presented with a trading interface that looks like this;
In the top right corner, you will see the menu icon with the three lines, click on that and you will then be presented with the 1inch advanced settings.
From here you can then manually change the slippage tolerance to something that will allow your trades to complete.
Before wrapping up it is important to point out a few more things you may have questions about regarding the trading interfaces and slippage. When completing your trade you will notice two more sections of note, Price Impact, and Minimum Received. Price impact, and Minimum received are two things that you need to be aware of when placing trades.
Price impact gives you an idea of what slippage to actually expect based on the size of the order that you are trying to place vs. whats happening in the market at the moment.
The Minimum Received indicator will show you the least amount of tokens you would receive from the trade, a worst case scenario.