Definition

Slippage is the cost of size. When you place a market order (or a large limit order) that exceeds available liquidity at the best price, your order consumes all the best-price volume and then continues filling at the next-best price, then the next, until it's fully filled. The average fill price is worse than the initial quoted price. The difference is slippage.

Example

The YES order book on Polymarket for "Fed cuts in June" shows:

100 contracts available at $0.47 (best ask)
80 contracts available at $0.48
200 contracts available at $0.49

You want to buy 200 YES contracts at market. Your order fills: 100 at $0.47, 80 at $0.48, 20 at $0.49. Average fill price: $0.4765. Your quoted price was $0.47. Slippage: $0.0065 per contract ($1.30 on a 200-contract order).

Why slippage kills arbitrage edge

Arbitrage spreads are small — typically 1–3% net after fees. Slippage of even 0.5% on both legs eliminates most of that edge. A trade with 2% gross edge and 1.5% total fees has only 0.5% net edge. Adding 0.3% slippage per leg (0.6% combined) turns it into a -0.1% loss.

How Arbitrage Agent prevents slippage

Arbitrage Agent reads the full order book depth before placing any trade, not just the best bid/ask. It calculates the average fill price at different sizes and selects the maximum size where the net edge (after fees and slippage) remains positive. This means trading smaller than the theoretical maximum — but ensures each trade is genuinely profitable.

Slippage on different market types

High-liquidity markets (major elections, Fed decisions): Minimal slippage up to large sizes ($5,000+)
Mid-liquidity markets: 0.2–0.5% slippage above $500–$1,000
Low-liquidity markets: Significant slippage even at small sizes — often not worth trading for arbitrage