An Analysis of Slippage on the Kraken Exchange
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Welcome to a 3-piece series on the Kraken exchange. In this study, we’re going to examine slippage for every trading pair available on Kraken. The other two studies will feature an analysis of order book depth and bid-ask spreads.
This study was created by HodlBot — the world’s smartest cryptocurrency trading bot. HodlBot helps cryptocurrency investors automate portfolio creation, indexing, and rebalancing. HodlBot is currently available to users on Binance, Kraken, Bittrex, and KuCoin. It’s completely free to start.
What is Slippage?
If you want to execute a large order, there may not be enough interest at the desired price level to maintain the expected price of a trade. The difference between the expected price of a trade and the price at which the trade is actually executed is known as slippage.
Slippage should be a negative function of trading volume When trading volume is low, you should expect to see more slippage and vice versa.
To measure slippage, we’re going to simulate a $5,000 buy to see how hard it raises the price. We’re also going to simulate a $5,000 sell to see how hard it crashes the price.
We’ll measure slippage as the percentage change between the initial price and the price after the $5,000 trade. Since there are technically two numbers, an ask slippage and a bid slippage, the final slippage number will be calculated as the average between the two.
In some cases, it may be impossible to actually fulfill a $5,000 buy or sell because the order book is that shallow. In those cases, we’re going to leave it out and give slippage an undefined value.
*For simplicity and legibility, we’ll convert all the prices of all trading pairs to USD. *
Here’s what slippage looks like for BTC/USD, the #1 traded pair on Kraken, compared to XRP/EUR, the #10 traded pair on Kraken.
Trading pairs with high volume will rarely see much slippage at all. They’ll feature a more narrow distribution and a lower kurtosis. But trading pairs with low volume and thinner order books could experience a wide range of slippage.
Trading pairs with higher volume will have a more narrow distribution and a lower kurtosis. Trading pairs with a lot of volumes will rarely see much slippage at all.
You can find summary statistics for the slippage of every trading pair on Kraken in the Google Drive link here.
Slippage vs. Trading Volume
On Kraken, you can see up to 40% in slippage for trying to execute a $5,000 order across a pair with low trading volume.
Here’s the exact same graph, but with trading pairs color-coded based on their volume rank.
Ranks #1–50 don’t experience problems with slippage. But this ramps way the hell up after rank 50. In extreme cases, you could experience slippage up to 25-40%.
Busting the Order Book Wide Open
Remember when we said that oftentimes, the order book can be too thin and a simple $5,000 order can overwhelm the entire order book?
Based on the snapshots we were taking every hour, here is how often the order book was too thin for an instantaneous $5,000 buy or sell.
I was surprised to see that almost all of the time, a $5,000 order could be met. Compare this to Binance, where a $5,000 order could not be met more 50% of the time across for trading pairs below the 50th percentile.
Sometimes exchanges try to list as many coins as possible and end up with trading pairs that are like ghost towns.
Kraken is different. There aren’t as many trading pairs on Kraken, but every single one has some decent activity.
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Written by Anthony Xie
I’m the founder of HodlBot.
I’m a big data nerd. I like to talk about all things data, finance, and crypto. You can find me on Twitter here.