Why You’re Losing Money on DEX: High Slippage, MEV Bots, and CEX Alternative

Ever approved and then, a few seconds later, looked at your wallet and found that you were receiving less than approved? If you’ve ever wondered, “Why You’re Losing Money on DEX: High Slippage, MEV Bots, and the CEX Alternative,” you’re not alone.

If yes, you’re not the only one. Many traders think that the only expense of using a decentralized exchange (DEX) is the gas fee. However, that’s just half the story. On any decent occasion, concealed components like slippage, cost effect, liquidity fabric, and even MEV (Maximal Extractable Value) bots can work their way into your assets.

There have been a lot of traders who have blamed the blockchain and the exchange for this. In most situations, however, if it is shown to be a problem, it is merely a matter of a trade realization. Once you know their hidden sources, you will be able to make informed decisions to save more money on your assets.

At the end of this guide, you’ll be familiar with the reasons you are losing money on DEX: High Slippage, MEV Bots, and CEX alternatives. You’ll also receive handy tips and practical examples of situations occurring in trading practice!

The True Cost of Every DEX Trade

There’s one thing I see many people get wrong about token swaps: people think that all they pay is the fee that is visible on the network.

In reality, there are several costs associated with each swap,p and some of them are not even apparent.

Total Trading Cost =

Trading Fee + Gas Fee + Price Impact + Slippage + MEV Loss + Spread

• Trading Fee: The amount of fee paid by the DEX smart contract or liquidity pool.

A cost imposed on blockchain transactions that is paid by validators.

Price Impact: The market impact that your buy or sell order has.

Slippage: Difference between the price at which the order was placed and the price at which the order was executed. MEV Loss: The amount lost due to bots that reorganize or take advantage of transactions. Spread: Difference between buying and selling price, particularly when trading is not very active in the market.

I have come to know that many traders do not take into consideration anything except gas fees . If a bigger swap or a less liquid token is being moved, however, the slippage and price effects could be much more costly than the trading fees.

Why You’re Losing Money on DEX: Breaking Down the Hidden Costs

If you happen to be reading this, you’re asking yourself, “Why do I continue to be losing funds on DEX: Blockchains, Slippage, and MEV Bot worms? Then, if you’re reading this, you’re questioning, “Why am I losing cash on DEX: Blockchains, Slippage, and MEV Bot worms? Take a look at which of the reasons is on top.

High Slippage

There are a lot of traders who confuse them, and they are actually quite different. Then the challenge with price impact is that how you do it will impact the price. Assume that they exist in a small quantity of a token in a liquidity pool. Suppose there is a small number of tokens in the liquidity pool. Assume a liquidity pool with minimal tokens.

The bigger the input slabs of the pool, the larger the price adjustment of the buy input by the automated market maker (AMM). The bigger the proportion traded relative to total liquidity, the more influence will be felt on the trading. This is because the market may be stable and you may only be able to get a lower deal on the entire price.

Gas Fees

The most apparent cost is gas fees, which can be unpredictable at times. The fee for transaction charges can become significantly higher if there is a lot of activity on the blockchain.

There is also a possibility for traders to have failed transactions. The swap itself may not complete, but they could lose some of the gas fee they are paying to gas the failed swap.

This is why performing a live network check before taking the plunge to trade to limit the expenses makes sense.

MEV Bots

MEV is known as Maximal Extractable Value. It is used in relation to strategies involving bots that track pending blockchain transactions and reorder, add, or manipulate them to make a profit.
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This is one of the least known reasons why a trader may not receive as good an execution as they think they deserve.

How MEV Bots Actually Profit From Your Trade

Although the name may seem technical, the concept of MEV is actually very simple. Suppose you are purchasing a sought-after token.

Specially programmed bots can see the transaction in the pending transaction pool in the blockchain before it is confirmed.

A simpler version of this would be like this.

1. You submit a swap
2. MEV bot alerts you to any unconfirmed transactions.
3. The bot purchases the token initially
4. A higher price occurs when your trade gets executed, and the price is higher.
5. The Bot sells the item as soon as it is created.
6. The bot also makes profits.

This tactic is referred to as a “sandwich trade,” as the trade is placed between the bot’s buy and sell orders.

Many traders aren’t aware of these issues, especially when buying or selling tokens on less liquid markets or during times of big price swings.

Slippage vs. Price Impact: They’re Not the Same Thing

It is one of the most confusing areas in DeFi.

Both impact the final price you’ll have to pay for your execution; their root causes are various.

This distinction can help understand the variance in outcomes of two trades with identical gas fees.

This is because, for instance, a $100 swap on a liquidity pool might have virtually no price impact. An exchange of $25,000 in a smaller pool, on the other hand, can shift the market by such an amount that it can make a significant difference in the average price per purchase, even when market prices stay relatively constant.

Why Trade Size Matters More Than Most Traders Realize

I have found a few things about trading on decentralized exchanges that I wish to share: Sometimes it’s more important to trade size than traders think.

This is because the $100 and $20,000 swaps don’t act the same, even though they are the same token pair.

This is because Automated Market Makers (AMM) operate liquidity pools rather than the conventional order book. The more that your order volume exceeds the liquidity in the market, the higher the chance for it to be used to move the market.

Let’s take a simple case:

Many traders, who have been around the block a time or two, prefer to break their large trades into smaller orders, rather than going all-or-nothing.

Why You’re Losing Money on DEX: High Slippage, MEV Bots, and the CEX Alternative are all significant factors, but one of the most common may stem from the size of your trades.

Hidden Trading Costs Most Investors Ignore

It’s important to note that most traders do not notice them in the form of a gas fee, since it is shown before they make a transaction.

In reality, though, the execution price tag can encompass a number of hidden costs that are not apparent at first glance.

These include:

• Trading fee taker from the liquidity pool
• Network gas fees
• Slippage
• Price impact
• MEV extraction
• Bid-ask spread
• Failed transaction costs
• Pay to move assets between different blockchains

These costs may be low on an individual basis. When taken together, they can have a considerable impact on your overall return, particularly if you trade often or utilize pools with low liquidity.

No inexperienced trader would consider doing it just because of a visible fee, which is why experienced traders will assess the overall execution cost.

DEX vs. CEX: Which Execution Venue Fits Your Trade?

Many people think of decentralized exchanges as being better or that centralized exchanges are always cheaper.

The truth is, it’s more complicated. That depends on what you are trading, how much you are trading, and what you care about.

For instance, if the newly launched token is not available on the main chain, in such cases, a DEX could be your only choice. If you are searching for an exchange that offers a wide range of available assets, including Bitcoin and Ethereum, but you are more focused on executing your trades than on the price, then an exchange with an order book might be your better option.

The objective is not to go for one platform for all scenarios. It’s about selecting the correct instrument for the job.

When You Should Still Choose a DEX

While this article aims to shed light on the reasons behind this article, decentralized exchanges (DEX) also have significant advantages to explain.

If you do, it might turn out that a DEX is the superior option:

• Desire complete management of the property.
• Choose self-custody over third-party custody.
• Desire to get access to the fresh tokens once launched in the market.
• Participate in DeFi protocols.
• Value on-chain transparency.
• No account on the exchange is required; no permission is required.

For lots of crypto end users, the advantages outweigh the possible execution difficulties. The important thing is to know the compromises involved before ordering.

30-Second Checklist Before Every Token Swap

Here are some of the things you should check before finalizing your next trade:

• Make sure that the trading pair is liquid.
• Ensure the estimated price impact is reviewed.
• Adjust a fair slippage level. Indicate a reasonable level of slippage.
• Compare prices using trusted DEX aggregators.
• Consider splitting larger trades.
• Avoid swapping during periods of extreme volatility.
• Double-check the network and the token contract.

To avoid wasting extra trading fees and/or decreasing the quality of trades, you can use this handy checklist.

How Professional Traders Decide Between a DEX and a CEX

There is no straight answer to this question from a professional trader.

Which movement would you choose to do?

Instead, they ask:

• Will my order be filled?
• Do you know what my trade size is?
• Does it matter if it is not perfect?
• Should I have self-custody?
• Can this token be used on-chain only?
• Is it possible for me to minimize slippage by trading on an order book exchange?

This mentality is more of an execution mentality than an emotional one. I have learned to treat all trades as a problem of execution, rather than simply a buying opportunity, and get more consistent payoff over the long-term.

In some cases, in order to maximize the speed of the transactions, it might be beneficial to compare decentralized exchanges with a centralized one for those who are trading the most popular cryptocurrencies. Whether it’s trading the Spot or Futures markets, check if the asset is supported on BTCC before making a trade. You may explore options like Spot trading for greater direct trade or Perpetual Futures for derivatives strategies, if available. BTCC may have liquidity and an order book for tokens traded, but the most optimal market for self-custodians and/or order book execution is dependent on the tokens traded, the order size, and the order book’s execution speed.

Conclusion

That’s about being familiar with the way in which trades are executed. The costs of gas fees are not to be overlooked.

Though some of the factors that affect your actual returns, such as slippage, price impact, liquidity depth, spreads, and MEV, are not immediately apparent, be aware of their potential impact. The full price of the trade should be considered and not just the quoted price. In certain cases, a DEX provides unrivaled flexibility and self-custody.

For some, a centralized exchange with strong liquidity might provide a more effective execution. Smartest traders don’t use just a single platform; they use the venue that is suitable for the asset, the market conditions, and the volume of their trade.