- Panic selling cost this trader $100,000 in slippage
- Market order sold about 300 Bitcoin at current prices
- Slippage dropped the price by roughly $1,000
Panic Sell Ends Up Costing Trader $100,000
Panic selling is rarely a good idea. This one trader knows it best. On Tuesday, a market order of the magnitude of 250 to 300 Bitcoin was initiated at current prices. But thanks to this position’s big weight on the market, there was no demand on the other end to meet the selling opportunity.
That’s when prices had to slip to accommodate the big market order, which had to be fulfilled at the best available price after the current market price wasn’t strong enough to sustain the incoming volume.
What Is Slippage and How Does It Work?
In other words, the sell side was a lot bigger than the immediate buy side. These 300 Bitcoin were sold at about $1,000 less than the predominant market price. But this only happened on the exchange where the order was initiated. Why? Because as a market maker and liquidity provider, this exchange is responsible for meeting buyers and sellers and arranging their dealmaking.
In that brief moment, all buyers on that exchange collectively put up about $1,000 less than the current market price to meet the selling pressure and buy the market order. In reality, that drop from the current market price to the best available price is called slippage, and it’s always bad for the trader.
The slippage cost the unfortunate trader about $100,000 in missed profit due to the lower price at which the order was executed. Had it been executed at the current market price, which was around $61,000 at the time, the trader would’ve made the optimal amount of money.
With the slippage factored in, the trader lowered the price to about $60,000 so their position could be filled immediately. Shortly after, the price was right back at the $61,000 handle as if nothing had happened. Only that this trader ended up missing a profit opportunity thanks to a rushed decision to get rid of about 300 BTC worth a total of $30 million.
How to Avoid Slippage as a Trader?
The way to avoid slippage is to gradually offload a big position so that there are enough buyers for each portion and you won’t need to accommodate your sell order at the best available price. Rather, the market price will be absolutely enough.
Hence, whenever you trade, make sure you trade based on proper emotion management and risk control. Before you move to the market to buy or sell the asset you’re holding, make sure your entry and exit levels are properly set. Also, place a stop-loss order if you’re going in and risking your funds to make a profit.
First of all, never risk more than you’re willing to lose. Invest only the amount of money that wouldn’t hurt your bank account or cause you to drop the quality of your lifestyle.
Markets are risky, so always approach them with the right mix of preparation, skill, knowledge, and consistency.
