Understanding Token Swaps
Token swaps on Uniswap allow you to exchange one cryptocurrency for another directly through liquidity pools, without the need for traditional order books or counterparties.
Benefits of Uniswap Swaps
- ✓ Instant liquidity for thousands of tokens
- ✓ No need to match with a counterparty
- ✓ Non-custodial trading (maintain control of your funds)
- ✓ Integration with hardware wallets for enhanced security
How Swaps Work
When you perform a swap on Uniswap:
- You select the token you want to swap from (input token)
- You select the token you want to receive (output token)
- Uniswap calculates the exchange rate based on the pool's reserves
- You approve the token spending (if first time using the token)
- You confirm the transaction and pay gas fees
Slippage and Price Impact
Slippage refers to the difference between the expected price of a trade and the actual executed price. This can occur due to:
- Large trade sizes relative to pool liquidity
- High volatility in the market
- Other transactions being processed before yours
Best Practices for Swapping
- Set an appropriate slippage tolerance (usually 0.5% - 1%)
- Check the price impact before confirming large trades
- Consider breaking large trades into smaller ones
- Always verify token addresses to avoid scams
Gas Fees and Optimization
Every swap on Uniswap requires Ethereum gas fees. To optimize your trading:
- Trade during periods of low network congestion
- Use the latest version of Uniswap for better gas efficiency
- Consider layer 2 solutions for reduced fees