Slippage and Price Impact

Slippage Tolerance

Slippage tolerance is an important setting to understand when trading cryptocurrencies on Auriswap. It represents the maximum amount of price change you’re willing to accept for your trade. Here’s how it works:

• What is Slippage Tolerance?: Because cryptocurrency prices are constantly changing, slippage tolerance helps you decide how much price fluctuation you can tolerate. It’s a safeguard that ensures your trade is processed even if the price changes slightly while the transaction is being completed.

• High Slippage Tolerance: If you set a high slippage tolerance, your trade is more likely to be executed even if the market is moving quickly. However, this means you might end up paying more than you initially expected because the price could have changed since you made the trade request.

• Low Slippage Tolerance: If you set a low slippage tolerance, you’re less likely to pay more than you intended. But, your trade might not go through if the market price shifts too much before your transaction is confirmed.

In summary, adjusting your slippage tolerance helps balance between ensuring your trade is executed and controlling the price you pay.

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Understanding Price Impact

Price impact is a measure of how much your trade affects the price of a token. Here’s a breakdown:

• What is Price Impact?: When you make a trade, the size of your trade relative to the amount of liquidity in the pool can affect the token’s price. Price impact tells you how much the price of the token will change due to your transaction.

• High Price Impact: If your trade is large relative to the liquidity in the pool, it can cause the token’s price to move significantly. This often happens when liquidity is low. A higher price impact means you might end up paying more than the current market price.

• Low Price Impact: If your trade is small compared to the liquidity available, the price impact will be minimal. This usually means you’ll pay closer to the market price and face lower transaction costs.

In essence, understanding price impact helps you gauge how your trade size affects the market and helps you make more informed trading decisions.