What is slippage, and how does it work in relation to prediction markets? “Slippage” is the term that describes the difference between the expected price of an event contract and the actual trade execution price.
Slippage in prediction markets can be both negative and positive. Negative slippage is when the order closes at a higher price than your initial purchase price. Positive slippage is when the trade executes at a lower price than you expected to buy for. Order size, liquidity, and market volatility are the three main factors that cause slippage on event contracts.
In basic terms, slippage is the difference between the expected price of a trade and the execution price. Primarily, slippage happens in low liquidity or highly volatile markets, and can apply to all forms of trading, including prediction markets, crypto, stocks, and forex.
As we explained above, slippage can be both negative and positive:
| 🗣 Description | 📈 Causes | 📝 Example | |
|---|---|---|---|
| ❌ Negative slippage: | The trade executes at a higher price than expected | Low liquidity, market volatility | You buy at an expected price of $0.50, but the trade executes at $0.55 per contract |
| ✅ Positive slippage: | The trade executes at a lower price than expected | Market volatility, fast market movement | You expect to buy at $0.50, but the order closes at $0.45 per contract |
On the face of it, you might think that negative slippage = bad and positive slippage = good, but that’s not always the case. While positive slippage does mean a lower outlay and therefore high potential profits if your prediction turns out to be correct, you have to think of the reasons why positive slippage has occurred.
If the price of an event’s contract has gone down, so has the chance probability of the prediction from happening. For example, if Nikola Jokić and Jamal Murray were to get injured at the same time, the price of a Nuggets win would slip positively.
Your overall outlay on “Yes” contracts for a Nuggets win would be much lower, but you’d have a higher chance of losing that money.
Here’s a more detailed explanation of things that can cause slippage in trading and prediction markets:
Specifically looking at prediction market apps, slippage is the difference between the expected and executed price for your event contracts. For example, you buy “Yes” contracts for the Chiefs to beat the Broncos on the spread at $0.60, but low liquidity results in the order filling at $0.65.
If looking at actual crypto trading, a slip would occur if the price moves up or down from your initial order price. For example, you ordered BTC at $1,000, but it closed at a $1,020 order price.
For crypto prediction markets, it works much the same as described in the section above. To use a positive slippage example, let’s look at the market “BTC Price by 3 pm Today EDT?”.
You buy shares for “$76,500 or higher” at $0.48, but as it’s a fast-moving and volatile market, the executed price drops to $0.45.
Slippage tolerance is a preset maximum price difference that you will accept when initially buying a trade. It is used to protect your event contracts from a heavy negative slippage that results in a trade that’s too financially unfavorable to you.
As explained in our guides to prediction markets, all legitimate CTFC-regulated exchanges have a tool in place that you can utilize when buying your event contracts. Let’s look at an example.
On Kalshi, one of the biggest prediction market sites in the US, there’s a “Limit Orders” option that you can use for slippage tolerance. This allows you to set the minimum and maximum prices that you will accept, and the time by which you’ll accept them.
You also have a “Resting order” option, which means that the trade will sit in the book, and your event contract purchase will only go through if the price is met. Here’s a step-by-step guide showing how it works:
Select the events contract that you wish to purchase (e.g., “Yes” for Orlando to beat Detroit in the NBA)
Confirm the “Buy” option (not “Sell”)
Click the arrow on the side of the purchase slip
Scroll down and select “Limit order.”
Enter the number of contracts that you wish to purchase
In the “Limit Price “field, enter the maximum price that you’re willing to pay per contract
Choose your “Expiration Time” option
Mark the “Submit as resting order only” checkbox (optional)
Hit “Submit” to finish
The trade will now only go through if the price doesn’t slip above the maximum limit price within your chosen time frame
Below are the expiration time-frame options you can choose on Kalshi, which we used as an example above. However, most other prediction market sites offer similar options on their slippage tolerance tools.
Here are our top five expert tips to help protect yourself against slippage:
The best way is to use the limit orders function when buying event contracts to protect yourself against negative slippage. As we showed you above, this can ensure that you don’t pay a higher price per contract than you’re initially willing to.
Only buy event contracts for popular prediction markets with a high trading volume. Major league sports games, high-profile awards ceremonies, and US elections are some examples.
If you’re new to prediction markets and want to avoid negative slippage, we recommend avoiding highly volatile markets like crypto and gas prices. Stick to high trading volume markets where the price isn’t likely to fluctuate too much.
Smaller orders are less likely to move the market too much, especially in a low-liquidity prediction market. This helps you on two fronts, as smaller orders are less exposed to slippage, and the occurrence of negative slippage will have a reduced financial impact.
Last but not least, stick to purchasing events contracts for prediction markets related to your interests and things you follow closely. For example, if you’re a sports fan, don’t go buying and selling contracts for economic prediction markets.
Before we finish, here are the pros and cons of slippage:
In summary, slippage is the difference between the expected price and the final executed price of an event contract for a prediction market. Negative slippage is when the price is higher than expected, and positive slippage is when it ends up lower.
You can mitigate slippage by placing limited orders on your prediction market site. This allows you to set a maximum price-per-contract that you’ll accept for the market.
Slippage is a trading term that refers to the price difference between the expected price at which you initially place a trade and the final executed price. For example, if you bought at $0.50 per event contract, but the final price filled at $0.53, this would be negative slippage. If you found this answer useful, you can check out our “What is event betting?” guide here.
Slippage in crypto trading is when the final price at which your trade is executed is different from the expected price. If it’s lower, this is positive slippage, and if it’s higher, it’s negative.
Yes, 10% slippage is considered high for prediction markets. To mitigate such an occurrence, it’s best to place a limited order with a maximum price threshold.
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