What is Slippage In Crypto?
January 28, 2022

The explosion of digital assets has been a sight to behold. As more cryptocurrencies begin to flood the market and bolster the DeFi movement, greater opportunities emerge to make profitable, life-changing investments.

With opportunity comes risk. Trading is not as simple as executing a bid/ask (i.e. buy/sell) order, and watching your profits soar. One easy example of complexity is when clients ask what is slippage in crypto and want to know what they can do about it.

Whether you are a high-value investor that occasionally spot-trades cryptocurrency, or a regular institutional investor negotiating over-the-counter (OTC) orders in crypto markets, you want to maximize your opportunities through the best investment vehicles and financial tools at your disposal.

The Problem with Conventional Trading: Slippage and Insufficient Liquidity

Have you ever placed a market order on an exchange, only to receive back a different price than what you were initially quoted? Most traders have experienced this discrepancy between their anticipated trade price and the actual trade price during order execution. This is called slippage, and there is good reason to be mindful of it.

There are usually two reasons for this phenomenon. Traders often concede to slippage costs when a) there is a change in the order spread between the time a market order is placed and when a market order is actually executed, and b) there is insufficient order book depth to execute larger market trades.

The latter is especially problematic for institutional investors looking to buy larger amounts of crypto assets. And although exchanges are the standard gateway to crypto for most nascent investors, they are less than ideal for large trades. Slippage appears because

  • Large trades can significantly impact market price on these exchanges. Most exchanges deal with limited liquidity to execute larger trades, and this can result in slippage. As a result, the larger the order size, the higher the average slippage rate.
  • Price volatilities can also cause slippage and affect your executed market order price. These fluctuations in asset value can leave you with more or less than the initial value of your market order.

Slippage can negatively impact regular traders and/or investors who want to retain the value of their assets, as the costs begin to accrue and eat away at potential profits. Trading a large amount of crypto on such platforms is difficult precisely for the aforementioned reasons.

So what is the alternative?

The OTC Solution: Avoiding The Slippery Slopes of Trading

SDM is a unique OTC crypto desk that delivers trading services through a customized, client-based approach for those looking to spot trade in crypto.

OTC crypto markets are decentralized broker networks that use desks (i.e. dedicated asset brokers) to facilitate market orders directly between two parties (i.e. buyers and sellers) outside of exchanges. OTC desks connect the parties, who in turn negotiate a set price, and upon agreement commit to a market order.

Not only do these decentralized markets avoid slippage altogether, but they are also a cost-efficient alternative to exchanges. Companies with lower liquidity that may not meet the criteria – or simply don’t want – to be listed on an exchange can save on listing fees and exchange management fees by trading through OTC markets, giving investors exposure to assets for cheaper than they could on an exchange.

Addressing The Limitations Facing OTC Crypto Services

It’s important to understand that while OTC crypto services present clear advantages, it is a more delicate trading environment that relies on accurate data, and is a primary reason for the lack of transparency in many decentralized markets. So while traditional crypto exchanges suffer from costly over-regulation and centralization, OTC markets are less limited, but highly dependent on reliable sourcing.

As a serious investor, having a fundamental understanding of who your OTC desk is and what they can offer is crucial to your success, this is where SDM differentiates itself from other desks.

While we have embraced the OTC model to facilitate crypto spot trading, we are taking it further, building on this foundation to provide something which addresses some of the shortcomings of OTC crypto markets.

Our Competitive Edge Over OTC & Exchange-Based Solutions

With over 50+ years of experience across global markets, SDM provides industry-leading services to deliver trading solutions that are tailored to your needs, around-the-clock with borderless reach. Dedicated account managers allow us to give individualized focus for your OTC needs in any time zone, with flexible settlement options to help you scale with expertise.

Our software is designed for low-latency trading. We facilitate large trades through high-liquidity API provision without negatively impacting the market. This direct liquidity feed connects SDM to top liquidity providers worldwide, allowing us to offer competitive pricing with superior market depth and zero slippage.

In order to stay ahead of the curve, we emphasize transparency where it is otherwise lacking. OTC spot trading in crypto should be straightforward; we avoid the typical OTC limitations of hidden spreads, as well as the deposit/withdrawal fees of exchanges. This gives us a competitive edge that is unmatched across any trading environment.

Trade with Confidence Through Secure Digital Markets

Need we say more? As an SDM client, you will receive top-notch support to scale your OTC needs. If you are a high-net value trader, crypto mining group, family business, institutional investor group or small business looking to diversify your portfolio in an ever-growing digital asset space, we encourage you to trade with us!

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