A Comparison of Slippage in Different Exchanges

Slippage refers to the difference between the expected price of a trade and the actual price that the trade is executed. It most commonly occurs when market orders are placed during periods of elevated volatility. However, it can also take place when large orders are placed in times when there’s insufficient buying or selling interest in order to maintain the expected trade price. As a result, traders are often faced with the cruel fact that the actual executed price might differ from the market price when orders are placed. 

Given a scenario, Eric intends to enter a short position of 1 million contracts at the price of $11,606, but the actual executed price is $11,605. The $1 difference between the expected price and executed price is considered to be slippage, also referred to as the slippage cost.

What Causes Slippage? 

Here, we’ll take you through some of the more common causes of slippage.

1. Extreme market volatility. Prices fluctuate drastically under a highly volatile market. For example, the LTP shown in the figure below is $9,728. However, the current best ask/bid price is already down to $9,723 and $9,723.50 respectively. So, if Eric is to short 100 contracts by market order, the best executed price will be $9,723.50. In this case, slippage is caused by market movements.

2. Insufficient market depth. When there’s a selling order, there must be corresponding buying demand. If there is insufficient market depth, it means that there is limited demand on the exchange and not enough orders in the order book. If a trader wants to enter the market with a large order at a time when there’s insufficient counterparty in the order book, it’s likely that the order will be filled at an unfavorable price, or not even get filled.

Suppose this time, Eric decides to short 50,000 contracts by market order. Assuming that the system processes his order in real-time with no other order placement or cancellation, the first 11,108 contracts will be filled at the price of $9,723; and the next 2,998 at $9,722.50. The process continues until all 50,000 contracts are fully executed at $9,717, which deviates from the best ask price of $9,723 by a significant margin of $6. In this case Eric has to bear a slippage cost of $30 for a $50,000 sell order. If Eric shorts 100,000 contracts instead, the slippage will be even greater, and some orders may not even be executed.

3. Matching engine with low efficiency. All systems require a processing time from the moment a trader places an order to the point of final execution. With a highly-efficient matching engine, the processing time is almost non-existent, thereby rendering it a moot point. However, if the system is inefficient, and there is latency, slippage will occur when the execution price deviates greatly from the expected price.

Slippage is a hidden cost that traders, particularly those placing large orders, are often faced with, which accumulate higher losses in the long run. Though market volatility is inevitable, slippage risks can still be managed by choosing a trading platform with sufficient market depth and a highly-efficient matching engine.

We have run a series of simulations for all of you traders out there, to give you a better understanding of the potential impact of slippage.

Understanding the Slippage Rate

Let’s simulate the impact of a $100,000 buy/sell order on the market.

In this scenario, let’s assume Eric places a market buy and sell order of  $100,000 simultaneously. If the system processes all orders in real-time and there is no other order placement or cancellation, how much slippage would you expect?

Take Bybit’s platform as an example, where the last traded price is $11,407.

For the buy order: There are a total of 1,028,609 contracts available at the best ask price of $11,407.50. The 100,000 contracts can be completely filled at the price of $11,407.50. After the order is completed, the best ask price still stands at $11,407.50. 

For the sell order: There are a total of 1,377,527 contracts available at the best bid price of $11,407. The 100,000 contracts can be completely filled at the price of $11,407. After the order is completed, the best bid price still stands at $11,407.

Slippage rate
= Price difference after impact orders / Mid-price after impact orders
= (11407.5 – 11407) / ((11407.5+11407)/2) = 0.004%

If we repeat the simulation continuously for 24 hours, the average slippage rate of a $100,000 and $1 million buy/sell order on Bybit as of Sept. 15, 2020 will be as follows:

This simulation was conducted live on the Bybit mainnet.

  Bybit BTCUSD Perpetual Contract
Avg $100k B/O Spread 0.009%
Avg $1m B/O Spread 0.035%

Source: Bybit Research                                                                                    Data retrieved from Sept. 15, 2020

Comparison of Slippage Across Different Trading Platforms

Now let’s replicate the simulation across different trading platforms and compare the outcomes.
Here are the results of a 24-hour live simulation, as of Sept. 15, 2020.

  Bybit BTCUSD Perpetual Contract  Binance BTCUSDT Perpetual Contract  BitMEX BTCUSD Perpetual Contract  OKEx BTCUSD Perpetual Contract 
Avg $100k B/O Spread 0.009% 0.020% 0.008% 0.013%
Avg $1m B/O Spread 0.035% 0.095% 0.048% 0.122%
Worst $100k B/O Spread 0.032% 0.034% 0.028% 0.034%
Worst $1m B/O Spread 0.074% 0.124% 0.097% 0.160%
Time Observed $100k B/O Spread > 0.01% 16.028% 88.058% 12.332% 62.906%
Time Observed $100k B/O Spread > 0.03% 5.311% 12.202% 3.706% 10.202%
Time Observed $100k B/O Spread > 0.05% 0.784% 0.104% 0.758% 0.614%
Time Observed $100k B/O Spread > 0.1% 0.002% 0.002% 0.019% 0.004%
Total Liquidity Within Top 0.05%  2,506,468 1,204,200 2,296,844 850,143
Total Liquidity Within Top 0.1%  3,600,875 2,845,085 3,747,349 1,812,470

Source: Bybit Research                                                                                Data retrieved from Sept. 15, 2020
*Since Binance’s BTCUSDT perpetual contract has better liquidity than its BTCUSD contract, we study the liquidity of Binance’s BTCUSDT contract as a proxy.

1. Average Slippage: $100,000 or $1 million impact order for 24 hours

  Bybit BTCUSD Perpetual Contract  Binance BTCUSDT Perpetual Contract  BitMEX BTCUSD Perpetual Contract  OKEx BTCUSD Perpetual Contract 
Avg $100k B/O Spread 0.009% 0.020% 0.008% 0.013%
Avg $1m B/O Spread 0.035% 0.095% 0.048% 0.122%

Source: Bybit Research                                                                                    Data retrieved from Sept. 15, 2020

Bybit and Bitmex showed a similar slippage rate based on a $100,000 order, at 0.009% and 0.008% respectively. On the other hand, Binance’s slippage rate was 0.020%, making it 2.22x higher than Bybit.

Another simulation with an order value of $1 million was also conducted to meet the needs of more advanced or competent traders for greater market depth. Under large orders, Bybit performed best with an average slippage rate of 0.035%. Bitmex came in second place at 0.048%, and Binance in third at 0.095%, which is almost 5x higher. OKEx showed the highest average slippage rate, at a whopping 0.122%.

Source: Skew                                                                                                     Data retrieved from Sept. 16, 2020

In the same case of a $1 million order, according to Skew data, Bybit showed the best slippage rate at 0.02%. Bitmex ranked second at 0.04%, and Binance’s slippage rate was 3x that of Bybit, hitting 0.06%.

Conclusion:

  • Bybit and Bitmex produced similar results under the impact of a single order of $100,000, with a slippage rate of less than 0.01%.
  • Bybit outperformed all other exchanges under the impact of a large order of $1 millon; followed by Bitmex.
  • The performance of OKEx on a large order was considerably less competitive.

2. Worst 5% Slippage: $100,000 or $1 million impact order for 24 hours

Trading opportunities come with volatility, so does slippage. 

Aside from average slippage values, worst case scenarios (i.e. maximum slippage), can be a great reference point for traders as well. The table below shows the comparison and analysis of each exchange’s slippage distribution within 24 hours. It is derived from the respective critical value of their worst 5% slippage rate.

  Bybit BTCUSD Perpetual Contract  Binance BTCUSDT Perpetual Contract  BitMEX BTCUSD Perpetual Contract  OKEx BTCUSD Perpetual Contract 
Worst $100k B/O Spread 0.032% 0.034% 0.028% 0.034%
Worst $1m B/O Spread 0.074% 0.124% 0.097% 0.160%

Source: Bybit Research                                                                                    Data retrieved from Sept. 5, 2020

Given the above condition, Bitmex’s slippage rate was the lowest (0.028%) among all four exchanges under the impact of $100,000 long/short orders. It was closely followed by Bybit at 0.032% and then OKEx.  Binance’s 5% worst case slippage was higher than Bybit, at 0.034%.

When the amount was increased to $1 million, the 5% critical value of Bybit’s slippage rate was 0.074%, the lowest among all four exchanges. Binance’s slippage rate was 0.124%, while OKEx’s slippage rate was 1.3-2.2x higher than the other exchanges.

Conclusion:

  • Under the impact of long/short order of $100,000, Bybit’s critical value was approximately 0.03%.
  • Under the impact of long/short order of $1 million, Bybit had the lowest slippage rate, followed by Bitmex.
  • OKEx’s performance across all simulated tests was less competitive by comparison.

3. Distribution of Slippage: $100,000 or $1 million impact order for 24 hours

  Bybit BTCUSD Perpetual Contract  Binance BTCUSDT Perpetual Contract  BitMEX BTCUSD Perpetual Contract  OKEx BTCUSD Perpetual Contract 

Time Observed $100k B/O Spread > 0.01%

16.028% 88.058% 12.332% 62.906%
Time Observed $100k B/O Spread > 0.03% 5.311% 12.202% 3.706% 10.202%
Time Observed $100k B/O Spread > 0.05% 0.784% 0.104% 0.758% 0.614%
Time Observed $100k B/O Spread > 0.1% 0.002% 0.002% 0.019% 0.004%

Source: Bybit Research                                                                                  Data retrieved from Sept. 15, 2020

The results shown in the above table highlights:

  • Bybit experienced a slippage rate greater than 0.01% in 16.03% of the tests conducted. 
  • Bybit experienced a slippage rate greater than 0.03% in 5.31% of the tests.
  • Bybit had a slippage rate of greater than 0.05% in 0.78% of the tests.
  • Bybit also experienced a slippage rate of greater than 0.1% in 0.002% of the tests run.

Binance and OKEx’s overall slippages were relatively high by comparison. Binance’s slippage rate was above 0.01% for 88.05% of the tests, while OKEx’s slippage rate was greater than 0.01% for 62.9% of the tests.

Conclusion:

  • With a $100,000 buy/sell impact order, you will experience the least chance of (greater than) 0.01% slippage on Bitmex and Bybit — 12.3% chance on Bitmex and 16% chance on Bybit.
  • With a $100,000 buy/sell impact order, you will experience least chance of (greater than) 0.1% slippage on Bybit and Binance — 0.002% chance.

4. Total Liquidity With Less Than 0.05% or 0.1% Slippage: Average Over 24 Hours

Now, let’s assess the market depth with trading volume. Assuming that the maximum slippage is 0.05% or 0.1%, how many long/short orders can an exchange sustain?

  Bybit BTCUSD Perpetual Contract  Binance BTCUSDT Perpetual Contract  BitMEX BTCUSD Perpetual Contract  OKEx BTCUSD Perpetual Contract 
Total Liquidity Within Top 0.05%  2,506,468 1,204,200 2,296,844 850,143
Total Liquidity Within Top 0.1%  3,600,875 2,845,085 3,747,349 1,812,470

Source: Bybit Research                                                                            Data retrieved from Sept. 15, 2020     

Bybit’s average trading volume within 24 hours was 2,506,468 when the slippage rate was no greater than 0.05%. It performed best out of all four exchanges. Bitmex came in second, with a volume of 2,296,844. It also had the highest volume (3,747,349) when the slippage rate was no greater than 0.1%, followed closely by Bybit (3,600,875).

Conclusion:

  • Bybit produced the best results when the slippage rate was no greater than 0.05%, followed by Bitmex.
  • Bitmex performed better when the slippage rate was no greater than 0.1%, closely followed by Bybit.
  • OKEx had the lowest quantity to sustain the 0.05% price slippage.

Slippage is a hidden trading cost, which is inevitable for most trades. It is especially prominent in a volatile market or when trading platforms have insufficient liquidity. Consistent slippage costs can be daunting in the long run, and may even exceed trading fees. Therefore, choosing an exchange with abundant liquidity is an important factor to take into account. 

As a trader, before you select a trading platform, it is worth making the effort to understand the explicit and hidden costs of trading. Making informed decisions will be of great value in the long run. 

If you’re looking for a robust and user-friendly exchange platform, Bybit could be the perfect crypto derivatives exchange platform for you. New users are eligible for Bybit bonuses and coupons. This means you get to experience live trading without risking your own capital. 

Sign-up now, and start trading the world, bit Bybit.

For more details on Bybit bonuses and coupons, click here!