Lesson 3 of 6, about 5 minutes to read
Slippage, price impact and the minimum you receive
Why big orders in small pools cost more, and what the slippage setting really changes.
Price impact
Your own order moves the pool's price. Buying pushes the price up as you buy, selling pushes it down. The bigger your order compared with the pool, the bigger the move.
A rough rule for a simple pool: the impact is about twice your order size divided by the pool's liquidity. A $3,000 buy in a pool with $600,000 of liquidity moves the price by roughly 1%. Real routes can do better by splitting the order, so treat the rule as a warning sign, not a quote.
Slippage tolerance
Slippage tolerance is how far the final result may fall below the quote before the swap is refused. At 0.5%, a quote for 100 tokens fails if you would get less than 99.5.
A higher tolerance makes a swap more likely to go through in a fast market, and also lets it fill at a worse price. Bots watch for swaps with loose limits and trade around them.
Thin markets
Liquidity differs a lot between assets. On the day these lessons were written, SOL had hundreds of millions of dollars in pools, while some tokenized stocks had under one million. The same order size can cost very different amounts. Paper trading on PINGO uses each asset's real pool liquidity to estimate impact.