Slippage in trading refers to the difference between the expected price of a trade and the price at which the trade is actually executed. Slippage occurs in all types of markets, including stocks, foreign exchange, and cryptocurrencies, and it can happen for a variety of reasons, such as high volatility, low liquidity, or delays in order execution. Slippage can be either positive or negative, meaning that the final execution price can be better or worse than the initially expected price.

How Slippage Works

When a trader places an order, especially a large one or a market order, there may not be enough volume at the chosen price level to fulfill the order immediately. In fast-moving markets, the price can change in the fraction of a second between when the order is placed and when it is executed. This discrepancy results in slippage.

Example of a 5% Slippage

Let's say you want to buy an XRPL token, and the current market price is 100 XRP per token. You decide to place a large buy order, hoping to purchase the coin at around this price. However, due to high volatility and low liquidity at the moment of your order, there's not enough volume at 100 XRP to fulfill your entire order. The next available prices for completing your order are higher, resulting in an average execution price of 105 XRP per coin. This means you've experienced a 5% slippage (5 XRP increase on the 100 XRP expected price), as the final price at which your order was completed is 5% higher than what you anticipated. First Ledger slippage tolerance setting Slippage can be controlled by going and adjusting the slippage tolerance in the /settings command. For example, if the slippage tolerance is set to 5%, this means the order will execute up to 5% away from current market price. In the example above, if the slippage is greater than 5% the order will fail to process and no tokens will be bought/sold.

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