Spreads & Slippage

Spreads & Slippage: The Hidden Costs of Every Trade

You don’t just pay fees—you also pay the spread (the gap between buy and sell prices) and slippage (how much the price moves while your order fills). Here’s how both work, why they grow when markets are busy or thin, and how to keep more of your money.

Reading time: 7–9 min • Education only—no financial advice

What Is the Spread?

The spread is the difference between the best bid (highest buyer) and best ask (lowest seller). If the bid is 0.9990 and the ask is 1.0010, the spread is 0.0020 (20 bps, or 0.20%). You cross that gap when you market-buy or market-sell.

Order book ladder showing best bid and best ask with spread highlighted
Spread = best ask − best bid. You pay it when you cross the book.

What Is Slippage?

Slippage is the extra price you pay because your order moves the market (or the market moves while you’re filling). If you buy $50,000 and the top of book only has $10,000 available, the rest of your order fills worse as it climbs the book.

Rule of thumb: bigger order size + thinner liquidity = higher slippage.

Why These Costs Happen

  • Liquidity providers need profit to quote tight prices (they take inventory risk).
  • Volatility widens spreads because quotes stale faster and risk rises.
  • Fragmented liquidity (many venues, pairs, chains) splits depth and increases price impact.

On-chain vs. Off-chain Dynamics

Centralized exchanges (CEX / OTC)

  • Order book depth and market makers drive spreads.
  • Slippage depends on top-of-book size and your order type.

Decentralized exchanges (DEX / AMMs)

  • AMM price curves create deterministic slippage: larger trades bend the curve more.
  • Gas fees and base-chain congestion can add delay and adverse fills.
AMM bonding curve diagram illustrating increasing price impact with trade size
On AMMs, price impact grows non-linearly with trade size vs. pool depth.

How to Reduce Spread & Slippage

  • Use limit orders instead of market orders when possible.
  • Break up size into tranches; work orders during liquid hours.
  • Route intelligently: compare venues, including DEX aggregators and reputable OTCs.
  • Set slippage tolerance (on DEX) low enough to protect, high enough to fill.
  • Avoid thin pairs: convert through deep base pairs (e.g., USDC/USDT, BTC/USDT, EUR/USD).

Quick Cost Calculator (Mental Math)

Total cost ≈ fees + spread/2 (you cross half if you buy then sell) + slippage.

  • Fees: 0.10% (maker/taker)
  • Spread: 0.20% → half ≈ 0.10%
  • Slippage: ~0.05% for your size/liquidity

Estimated round-trip: 0.10 + 0.10 + 0.05 = 0.25%. On $100,000, that’s about $250.

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FAQ

Is a tighter spread always cheaper?

Usually, but check depth. A tight spread with no size can still produce heavy slippage.

Why did my DEX trade fail?

Slippage tolerance too low, pool too thin, or gas/MEV competition. Try a smaller size or aggregator.

Best time to trade?

When liquidity is deepest—typically overlapping market hours and away from major news releases.

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