When clicking on the Quote Comparison button, you may have noticed the section comparing Average Slippage. What does this mean exactly?
To understand Average Slippage, you will first need to understand slippage. Slippage refers to the difference between the expected price of a trade and the actual executed price of the trade. This slippage is de facto a hidden price impact that users may experience when trading against an Automated Market Maker (AMM).
Slippage tolerance is a parameter that determines the worst acceptable price for a trade. With our transaction widget, you can adjust your tolerated amount of slippage so that if the resulting price is worse than the set threshold, the trade will not execute. Just note, the default slippage tolerance is set to 0.5% and should only be adjusted if you are willing to experience larger amounts of slippage.
To learn more about slippage tolerance, visit our Advanced Settings article.
Now that you understand what slippage is, let’s go over Average Slippage. Average Slippage refers to the average amount of slippage you can expect with the pair of tokens you are attempting to trade. Our Quote Comparison tool displays what the Average Slippage amount would be for the trade route Matcha has selected, compared to the best trade another DEX or DEX aggregator would provide. Since slippage can cause you to get a worse executed price than quoted, knowing what amount of slippage is expected helps you get the actual best price on a trade.
How do we calculate Average Slippage? The 0x API calculates average slippage using historical data from hundreds of thousands of live trades. Thanks to this data, we are able to determine what the expected slippage is for a given trade.
To learn more, read the 0x blog post on measuring the impact of hidden DEX costs.