Slippage and Price Impact

When purchasing shares in an outcome, the price does not remain static throughout the transaction. Instead, each additional share affects the pool's internal balance, which results in a higher marginal price for subsequent shares in the same transaction.

This phenomenon is known as slippage: the difference between the expected price and the average price paid across the full trade.

Illustrative Example

If the current price of “Bobby to Win” is 0.40 USDC:

• A small purchase (e.g. 1–2 shares) will likely clear at or near that price.

• A larger purchase (e.g. 100 shares) will shift the price upward during the trade, resulting in an average purchase price higher than 0.40 USDC.

This effect is a core feature of the FPMM and reflects the natural price sensitivity of the pool.

How Slippage Is Calculated

Slippage is a function of the trade size relative to the pool's liquidity. The FPMM calculates the average price based on the area under the curve for the intended trade size. The larger the purchase, the more the price curve is consumed, and the greater the slippage.

Before confirming a trade, the CalledIt interface provides:

• The average price per share for the proposed quantity

• The expected price impact

• The post-trade market price

These pre-trade estimates allow participants to evaluate whether the size and timing of a transaction is optimal, or whether a more gradual entry would reduce cost.

Strategic Implications

Participants who wish to minimize slippage may choose to:

• Break large trades into smaller transactions

• Enter earlier in the market lifecycle, when liquidity is more balanced

• Target markets with higher volume and participation, which exhibit shallower price curves

The FPMM ensures that all participants operate under the same rules, and that pricing always reflects real-time demand.