Understanding slippage and spread

What is a spread?

When you buy or sell cryptocurrency, the spread is the difference between the current market price for that asset and the price you buy or sell that asset for. 

Coinbase includes a spread in the price when you buy or sell cryptocurrencies or in the exchange rate when you convert cryptocurrencies. This allows us to temporarily lock in a price for trade execution while you review the transaction details prior to submitting your transaction. Learn more about Coinbase pricing and fees

How does spread impact my crypto conversions?

Spread is applied to the exchange rate when converting between two cryptocurrencies. When you’re converting between two cryptocurrencies, the conversion is based on the exchange rate between those assets—not the cash value. The exchange rate is determined by the market and is shown on the confirmation screen before you confirm the conversion. 

What is slippage? 

Slippage is when the price of an order executes at a drastically higher or lower price than you expected. Due to the volatility of cryptocurrency, the price of an asset can fluctuate often depending on trade volume and activity. If the bid-ask spread on the exchange “slips” more than 10%, then your order would be canceled. 

For example, if your ETH buy executes immediately at $1800 and the current market price is $1860, but the price goes down to $1841.40, this is slippage and you’ll collect more ETH. In this example, the slippage percentage is 1% and your order would still execute.  

If you were to trade BTC for ETH and the exchange rate is 1 BTC = 10 ETH (while the cash value of BTC is $1000 and ETH is $75), and the exchange rate suddenly changes to 1 BTC = 9 ETH, then your trade would be canceled. In this example, the slippage rate is more than 10%.

What causes slippage?

Slippage is caused by the amount of liquidity, which is how quickly you can buy and sell an asset without impacting the price. So if there is low liquidity or low trading activity in the market for a specific asset, then the slippage percentage is higher. 

Note: If the amount of slippage on an order were to exceed the spread applied to the order, Coinbase will cancel the transaction as a safeguard against losing value due to unexpected exchange rates.

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