Slippage tolerance is a parameter that defines how far the final result of a swap may deviate from the expected result before the transaction is rejected. It is particularly important when trading through AMMs and liquidity pools.

The displayed price before a transaction is submitted is not necessarily the final execution price. Between transaction construction and execution, other trades can change the pool reserves and therefore change the available exchange rate.

Slippage tolerance establishes a boundary for acceptable execution. If the user expects a certain output amount, the smart contract can reject the operation when the actual output falls below the permitted minimum.

A very low tolerance can cause legitimate transactions to fail when market conditions change slightly. A very high tolerance allows execution under a much wider range of prices and can expose the user to unfavorable execution.

Slippage tolerance should be distinguished from actual slippage. Tolerance is the limit selected by the user, while slippage is the actual difference between expected and executed pricing.

The appropriate setting depends on market liquidity, trade size, volatility, and the design of the protocol. Users should be especially careful with unusually high tolerance values on unfamiliar interfaces because they permit execution across a wider price range.