Price Impact and Slippage
Price impact is the move your own trade causes; slippage is the gap between the expected and executed price; slippage tolerance is the maximum move you accept.
Quick answer
Price impact is how far your own order moves the price. Slippage is the difference between the price you expected and the price you actually got. Slippage tolerance is the maximum move you tell the app you will accept.
What it means
In a pool-based market, every trade shifts the balance of reserves and therefore the price. A larger trade relative to the pool causes larger price impact. Slippage is the realized version of that gap by the time your trade settles, which also depends on how fast the market is moving.
Why it matters
On thin memecoin liquidity, price impact can be a large share of a small trade. A good idea can still lose money if the fill is poor, and exiting can be as costly as entering.
What happens if you ignore this
If you ignore slippage, the price you see is not the price you pay. On a thin token you can lose several percent the instant you buy — and several percent again when you sell — turning a 'winning' idea into a loss before the market even moves. Set a tolerance so a bad fill cancels instead of costing you.
Common mistakes
Setting a very high slippage tolerance to force a fill can lead to a much worse price. Confusing tolerance (a setting) with actual slippage (an outcome) leads to surprises.
Story
Trevor spots a thin new token and market-buys what he expects to be $100 worth.
He expects to pay about $100 for his tokens.
His own order is large compared to the tiny pool, so it pushes the price up as it fills. He actually pays $108 — an 8% loss before the token has moved at all.
In a thin pool your own buy moves the price against you (price impact), and the gap between expected and paid is slippage. A slippage tolerance caps that gap; smaller orders and deeper pools shrink it.
Beginner tips
- The price you see is a quote, not a promise — slippage is the gap to what you actually pay.
- On thin tokens, split a big order into smaller pieces to reduce impact.
- Set a slippage tolerance so a bad fill cancels the trade instead of soaking the loss.
Common mistakes
- Treating slippage tolerance as if it were the actual slippage.
- Ignoring how trade size compares to pool liquidity.
- Using a very high tolerance just to make a trade go through.