Back to: DeFi 101
A decentralized exchange lets you trade from your own wallet — no account, no custody, no permission. This lesson is the complete mechanics: how prices form, where your money leaks, and how to trade without donating to bots.
How AMMs price your trade
Most DEXs are automated market makers: a pool holds two tokens, and the `x * y = k` formula reprices after every swap. Big trade relative to pool size = big price move against you. That movement is slippage.
The costs nobody lists
1. Slippage — set tolerance tight (0.5–1% for majors); loose tolerance is a sandwich attack invitation. 2. Price impact warning — if the UI flashes >2–3%, shrink the trade or find deeper liquidity. 3. Gas — complex routes cost more; failed transactions still cost gas. 4. MEV — your visible pending swap is someone’s profit opportunity (front-running).
The professional routine
1. Verify the DEX domain yourself; bookmark it. 2. Check the token contract on an explorer (verified code, sane holders). 3. For size, route via a DEX aggregator. 4. Set slippage deliberately, review the full quote (rate + fee + impact), then confirm in-wallet — reading what you’re actually signing. 5. Never approve unlimited spending when a limited approval works.
Limit orders and perps (know they exist)
Spot swaps are lesson one. Beyond them: on-chain limit orders, and leveraged perpetual futures — the latter liquidates beginners professionally. Master spot first; treat leverage as a separate education with its own tuition.
On a DEX you are the trader, the compliance officer, and the security team.
> Act like all three and the bots eat someone else.
Next lesson: lending and borrowing.