Slippage refers to the difference in expected price versus actual price when performing a cryptocurrency transaction.
Slippage occurs on cryptocurrency exchanges when traders expect to receive a certain amount of cryptocurrency based on the market price at the time the order was placed but receive less due to a change in price between when the order was placed and when it was actually transacted. This difference in value is usually shown as a percentage and can vary greatly due to the infamous price volatility of cryptocurrencies.
This is more likely to occur during period of high demand for the cryptocurrency or when there is a great deal of activity on the blockchain, as this would cause delays while the mining nodes are processing the backlog of transaction orders. For instance, Bitcoin (BTC) transactions usually take between 1 to 10 hours to complete, but can even take up to 24 hours, at which point the transaction order will be cancelled. During a bull run, the price can easily either sky-rocket or crash, as was seen during both the 2017 and 2021 cryptocurrency bubbles.
Whether slippage is good or bad depends on who is on the receiving end of the devalued trade. If you are purchasing a cryptocurrency and the price decreases, then you would be getting more cryptocurrency for your investment, while the other person would be receiving less than they had hoped. The reverse is also true. It is always better to be on the end where the trader receives more than expected from the sale.
Due to the prevalence of this, traders can stipulate in their smart contract up to what percentage of slippage they would be willing to accept for the trade. If it is too high, the contract will be cancelled. It is therefore better to calculate the value of slippage that you are willing to accept prior to signing the contract. Many cryptocurrency exchange platforms, like PancakeSwap, offer this stipulation when the trader is setting up their contract on the platform. Other platforms, such as Coinbase, display a slippage percentage and price estimate at the bottom of every market order.