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The real reason for the “Price Impact Too High” error on PancakeSwap is due to liquidity problems. If there is insufficient liquidity, the “Price Impact Too High” on PancakeSwap error is flagged. In other words, the issue is caused by the supply and demand ratio of the chosen assets pair in a given exchange. It indicated the liquidity providers aren’t providing enough liquidity in this market and so the price could be affected.

While you may have a “Price Impact Too High” on PancakeSwap negatively impacting your trading experience, there are ways to solve the problem.

In this guide, you break down the cause of “Price Impact Too High” on PancakeSwap and how to fix it.

Key Takeaways

  • “Price Impact Too High” error is a safety protocol incorporated to all Decenralised Exchanges e.g Uniswap , Pancakeswap etc.
  • Adoption of other exchanges is the easiest method to fix the “Price Impact Too High” error.
  • In pancakeswap, this error started after the migration from PancakeSwap V1 to the latest version V2.
  • This problem often occur with smaller tokens that have limited supply
  • Sometimes, Phone browsers, Slow Network speeds can contribute to this error.

To Understand the cause of this error, the Liquidity and Liquidity pool are terms to be familiar with.

What Is Liquidity and Liquidity Pool?

Liquidity in a Decentralised exchange implies the ease with which a crypto asset(s) can be swapped for another crypto asset. For instance, if you can easily swap your Eth for another token(Usdt), we can say there is liquidity in that market.

A liquidity pool acts as a sort of “storage” in which users combined crypto assets to deliver liquidity for everyone who likes to swap their asset for another.

Users who put together their crypto assets into the liquidity pool are referred to as Liquidity providers. They “pool” their crypto assets to provide the large number of tokens that another trader wants to buy.

For example, Using the MATIC and the Tether (USDt) pair.

The liquidity provider who wishes to provide liquidity for MATIC/USDT pair must contribute the same value of  MATIC and USDT to the pool. So if a Liquidity provider desires to provide 100 MATIC in the Liquidity pool, he has to contribute USDT equal to the MATIC provided. In this case, let’s assume 1 MATIC is equivalent to  10 USDT. The Liquidity Provider will also have to invest 1000 USDT  (100*10) into the pool.

Anyone who likes to swap MATIC to USDT or vice versa can make use of this pool. Liquidity providers receive rewards each time a transaction takes place in the pool.

What Is the meaning of “Price Impact Too High” on PancakeSwap?

The Price Impact Too High error is an indicator that ensures the liquidity services Decentralized Exchanges provides don’t collapse, thus,  this benefit both the exchange and its users.

For illustration, let’s say you want to purchase a crypto asset worth $500, the decentralised exchange protocol will have to weigh the impact the 500$ might have on the liquidity pool in percentage. So assume the $500 of the crypto asset is 40% of the liquidity pool(that is huge for a single transaction), the safety protocol incorporated into the exchange will flag the “price impact Too High” mechanism, as a result, the overall cost to continue with the transaction will be increased, in attempt to discourage you from proceeding with the transaction.

When you receive a“Price Impact Too High” on PancakeSwap, it signifies that your transaction will have a high impact on the Pancakeswap liquidity pool and this is often accompanied by a high transaction fee.

How to Fix “Price Impact Too High” on PancakeSwap

There are three ways to fix the “Price Impact Too High” error on PancakeSwap
  • Reduce Your Trades Volume
  • Increase Slippage Tolerance
  • Adopt other services.

Reduce Your Trades Volume

PancakeSwap safety protocol measures the percentage of liquidity (crypto assets) you want to purchase in comparison to the impact it might cause to the overall pool. The higher the percentage, the higher the overall transaction costs.

To avoid triggering the “Price Impact Too High” error is to reduce your trade volume i.e indulge in Multiple smaller transactions.

However, this error is not solved completely, suppose you make a series of smaller transactions accumulating to the volume of your initial trade, there is a good chance of getting the “Price Impact Too High” flag again. Each transaction carry out drains the overall amount of tokens present in the liquidity pool.

Sometimes Users get lucky, Before they could complete the series of smaller transactions, there is a new Liquidity added to the pool, thus providing the opportunity to complete your trades.

Reducing your trade volume to process multiple transactions can be stressful but an effective way to dodge huge transaction costs.

Increase Slippage Tolerance

The Slippage tolerance is the adjustment of the price “fluctation” you are willing to accept and is portrayed in the percentage of the total value of the trade.

Slippage Tolerance is a feature that must be set in Decentralised Exchange before any trade is initiated

For instance, In Uniswap, the Slippage Tolerance by default is 0.5%, so let’s say you set an order to buy 100 USDT,  with the slippage tolerance set to 0.5%, you might receive as low as 995 USDT. The higher the slippage tolerance, the lower the return on your order.

 

Price Impact Too High

So to deal with the Price Impact Too High error, An increase in the price slippage can be an effective way in tackling the problem

The time it took to manually set up your transaction in decentralized exchanges can cause the price to change quickly especially in a smaller token, an increase in price slippage ensure the transaction is completed.

To Manually set your Slippage tolerance using the above image, we try to tap the “price slippage tolerance” represented in percentage and confirm it.

With higher Slippage tolerance, chances are good that your order will be completed. and this could clear the “Price Impact Too High” message.

Although be careful not to set the tolerance to high as this may expose you to front-runner attacks

A front-runner attack is when another user spots your trade after it is broadcast and before it is finalized.

So this is how a front-running attack works; When you set a buy order, it is automatically broadcasted publicly (Everyone can see it)  A front-runner will

  1. Buy a token at a specific price. This increase the value of that token.
  2. Complete the original buy transaction (hence increasing the token price more).
  3. Sell all the tokens at a higher rate, netting a profit.

 

They will then have their transaction confirmed before yours, earning a significant profit in the process. On the other hand, a slippage tolerance that is too low will cause the transaction to fail.

To manually set up Slippage Tolerance on Pancakeswap;

  • Open PancakeSwap and go to “Settings,” located in the top left corner.
  • Scroll down to “Slippage Tolerance.”
  • Input the slippage tolerance you desire

Adopt other services.

If the Problems still persist, the alternative way to fix this error is to adopt other services. There are a couple of Legit DEX out there, that offer good services similar to Pancakeswap

For example, Uniswap, an exchange created by Hayden Adams. It was built on top of the Ethereum blockchain. Similar to Pancakeswap, it supports users to Buy/Sell crypto assets without any involvement of a third party

You can also read:

The Beginner Guide to crypto staking/Nigerian Investors