Slippage is the difference between the mark price and the price at which a trade is executed. While slippage is a standard part of trading, understanding how it works will help you manage your execution more effectively.
What is Slippage?
Slippage refers to the difference between the Mark Price (the current estimated value of an asset) and the actual price at which your trade is executed.
Slippage most frequently occurs with Market Orders, which are designed to execute immediately at the best available price. When you place a market order, the Quoted Price offered by the OLP (Omni Liquidity Provider) will likely differ from the current Mark Price. This gap is the slippage.
Slippage most frequently occurs when you use Market Orders - orders to buy or sell at the best available price.
Why Does Slippage Happen?
Slippage is primarily driven by two factors:
Market Volatility: Prices can move in the time between when you submit an order and when it is processed.
Liquidity Availability: If your order is larger than the available supply at the top of the book, the remainder of your order slips to the next available price level.
Minimizing Slippage
Use the following strategies to minimize slippage.
Set a Slippage Limit
Omni allows you to input a specific Slippage Limit when opening Market, Take Profit/Stop Loss, or Trigger orders.
Use Smaller Sizing
Large orders are more susceptible to slippage because they require more liquidity to fill. Instead of entering or exiting a position with one large trade, consider breaking it into multiple smaller trades. This gives the OLP more opportunity to source liquidity at your desired price levels over a period of time.
Use Limit Orders
A Limit Order allows you to set the exact price you are willing to accept. Unlike Market Orders, Limit Orders will only execute at your specified price (or better).
Note: While Limit Orders eliminate slippage, there is a risk that your order may not be filled if the market does not reach your specified price.