Understanding slippage is an important concept for anyone trading on Mesh, particularly when dealing with the volatile nature of cryptocurrencies.
Simply put, slippage refers to the difference between the expected price of an order and the price at which the order is actually executed. Slippage can occur due to various factors such as market volatility, order size, and liquidity of the market. It is important to note that slippage can be both positive and negative.
For example, a user orders an asset quoted at 10 mZAR per unit. The user places an order for 1 unit at the quote price of 10 mZAR per unit. However, in the time it takes for the order to execute: the price per unit shifts to 11 mZAR. Hence, the user receives 0.9 units of the asset. This is an unfavourable slippage of 10 percent, resulting in a higher purchase price for the asset. However, in some cases, slippage can be positive, meaning the order is executed at a lower price than expected. It is also important for users to be aware of the slippage tolerance setting, which allows them to set a limit on the maximum amount of slippage they are willing to accept. This can be especially useful for traders who want to limit their risk exposure and avoid unfavourable slippage.