People use slippage and price impact as if they were the same thing. They are related, but they measure different effects.
Price impact
Price impact is how much your own trade moves the pool. It depends on your size compared with the pool. Buying one thousand dollars of a token from a pool holding one hundred thousand moves the price more than buying it from a pool holding ten million. You can see it before you trade, and the only ways to reduce it are to trade smaller, split the order, or use a deeper pool.
Slippage
Slippage is the difference between the price you were quoted and the price you actually get, because the pool changed between the moment you clicked and the moment the transaction was included in a block. Other traders, bots, and token taxes all contribute.
The slippage setting
Your wallet or the venue asks for a maximum slippage, such as one percent. If the final price is worse than that, the transaction reverts rather than fill badly. A setting that is too tight causes failed transactions and wasted fees. A setting that is too loose invites bots to take the difference.
- Large, liquid tokens: a low setting usually works.
- Tokens with a built-in buy or sell tax: your setting must exceed the tax or every trade fails.
- Very new or thin tokens: expect to need more, and understand that more room means a worse expected fill.