Platform basics: The slippage indicator

To properly understand what slippage is, we will first explain what an order book is and how it works. We will then take you step by step on how you can get a lower price and which steps you can take for this.

What is an order book?

An order book is a list of all the bid and ask prices along with the size of the orders. This is used by exchanges to bring together buyers and sellers of an asset and to provide an overview of the current state of the asset.

The amount of orders is called volume in the financial market. The amount of volume in the book says something about how much can be traded. When you sell a lot relative to the order book, this will lead to a decreasing price. Because the supply becomes higher without the demand changing. When you buy a lot relative to the order book, this will cause the price to increase because demand increases compared to supply.

How does an order book work?

When you want to buy or sell an asset, you use the order book to choose a price. There are two types of orders you can do in an order book, a limit order and a market order. With a limit order, you specify a certain price you want to pay or receive, your order is only filled at that price. With a market order, the price doesn't matter, and the system tries to fill your order as quickly as possible.

When do you get the slippage indicator warning?

Slippage is the difference between the price you pay and the market price. The slippage indicator indicates the likelihood of high slippage. This may be because the order book has little volume so that the price can rise due to high demand compared to the book or due to high price volatility. The higher the chance, the more the meter will be in the red.

Then you have two options. The first is to ignore the message and just execute your order at the current price. The other option is to change your order. Here you can, for example, change your order size so that you ask less from the order book. This can ensure that you keep the price lower.

What can I do to prevent a lot of slippage?

The best way to avoid high slippage is to do small quantities in multiple orders. Especially when it comes to small coins with a low market capitalization, it is wise to place several small orders instead of one large one.

The disadvantage of submitting multiple orders is that you pay transaction costs several times. You must therefore decide for yourself whether the sum of the transaction costs is higher than the additional price you pay when you place a large order.

How do I get the best price from the order book?

To get the best price from an order book, you need to carefully look at the bids and asks listed on the order book. This usually means comparing the prices and quantities of the bids and asks to determine which are the most favorable.

One way to do this is to look for bids and asks that are close to the mid-market price, because these are generally considered the most advantageous. The mid-market price is the average of the highest bid and the lowest ask on the order book, and it represents the point at which the market is most balanced. Bids and asks that are close to the mid-market price are generally considered the best value because they offer a good combination of price and liquidity.

Another approach is to look for bids and asks that offer a large quantity at a favorable price. This can be especially useful if you are looking to buy or sell a large amount of a particular asset. It can help you get a better price by taking advantage of the higher liquidity available on the order book.

Keep in mind that the order book is constantly changing and that the prices and quantities of the bids and asks can fluctuate quickly. Therefore, you need to keep an eye on your order being executed and be careful if you do a market order.

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