Slippage is the difference between the price at which the trade is created and the actual price at which the trade gets executed. Slippage is not limited to VALR. It can occur on any market or Exchange. Two of the most common reasons for slippage are:
1) Low Liquidity: If the liquidity is low in the market you are trading, the spread will likely be higher.
2) High Volatility: When there is a rapid price movement between the time the order is created and executed.
VALR enforces two measures to help reduce slippage on the VALR exchange:
1) Slippage warnings
2) Slippage protection
Slippage Warning
VALR has implemented a warning message to notify a user of slippage and assist with minimizing the impact of slippage on trades.
If you place a Simple Buy/Sell or market order on a trading pair with low liquidity, this trade can incur slippage. VALR's system automatically triggers a slippage warning before executing your order to notify you that you may be buying/selling at a bad price.
A slippage warning is intended to warn customers of a trade that might execute at a price very different from a fair market price.
Please note that VALR does not guarantee that customers will always see a slippage warning. We provide this message on a best-efforts basis. Still, markets are dynamic, and changes in market conditions, including market liquidity, can sometimes impact our ability to provide slippage warnings.
Calculating Slippage
Suppose Alex places a market buy order to buy 10 BTC at $20,000 per coin. If the BTC is trading at $20,000, but there are only 5 BTC available to sell at that price, the other 5 BTC may be filled at a higher price.
We calculate slippage as a percentage using the difference between what you should receive at a fair price and the amount you will receive based on the size of the order placed. If that percentage is above a certain threshold, a warning may be shown and/or part or all of a trade might be cancelled if significant slippage is incurred.
Slippage Protection
Slippage protection is an essential feature of an exchange's order book that helps to prevent market manipulation. This ensures that large orders do not move the market price too quickly and that no single trader can control the order book.
How does slippage protection work on VALR?
VALR prevents the exchange from experiencing significant slippage by enforcing a hard rule on how far through an order book market orders can execute. Slippage protection protects the VALR exchange and its users from significant price swings due to VALR user trading activity.
Slippage protection is only enforced on the market order type and simple buy/sell. Any market order that crosses the spread by more than 15% higher / lower than the best bid / best ask respectively (i.e. measured from the same side of the order book as the order is placed) is immediately cancelled and will not be filled. The portion of the trade that executes at better prices than 15% higher / lower than best bid / best ask is still filled.
Please note that you may experience significant financial loss if you proceed with a Simple Buy/Sell or market order in unfavourable trading conditions.