Liquidity, Spread, Slippage and Execution Explained
Understand how liquidity, bid-ask spread, order size and slippage affect the price you receive when a crypto order executes.
Why execution can differ from the price you first see
A market page can display a current or last traded price, but that number is not a promise that your entire order will execute there.
Actual execution depends on available liquidity when your order reaches the market.
Four concepts are especially important: liquidity, spread, depth and slippage.
Liquidity
Liquidity describes how easily an asset can be bought or sold without causing a large price movement.
A highly liquid market generally has more orders available close to the current market price.
A less liquid market may have larger gaps between available prices.
Spread
The spread is the difference between the highest current bid and the lowest current ask.
Example:
- best bid: 99.50;
- best ask: 100.00;
- spread: 0.50.
A tight spread usually indicates that buyers and sellers are quoting close together.
A wide spread increases the difference between immediately buying and immediately selling.
Depth
Depth is the quantity available across order-book price levels.
A market may have a tight spread but only a small quantity available at the best price.
If your order is larger than that quantity, it can continue executing at the next available prices.
Slippage
Slippage is the difference between an expected price and the actual average execution price.
Slippage can occur when:
- an order is large compared with visible depth;
- the market is moving quickly;
- available orders are cancelled before execution;
- the market has low liquidity;
- the spread is wide.
Slippage is not necessarily an exchange error. It is a normal possible result of matching against changing market liquidity.
Example of multi-price execution
Suppose the sell side contains:
- 1 unit at 100;
- 2 units at 101;
- 5 units at 103.
A market buy for 4 units could consume:
- 1 at 100;
- 2 at 101;
- 1 at 103.
The average price would therefore be above 100 even though 100 was the best ask when the order began.
Market orders
Market orders prioritize execution using available liquidity.
They are useful when execution is more important than controlling the exact price, but they can experience slippage.
Limit orders
Limit orders prioritize price boundaries.
A buy limit sets the maximum price you are willing to pay.
A sell limit sets the minimum price you are willing to accept.
A limit order can remain open and may never fully execute.
Reducing execution surprises
Before submitting an order:
- review the spread;
- examine order-book depth;
- compare your order size with visible liquidity;
- consider using a limit order when price control matters;
- review the final fills in Trade History.
Read Spot Trading: Market vs Limit Orders.
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