Slippage tolerance is the maximum unfavorable change from a trade quote that a user permits at execution. In token swaps, it is commonly implemented through a minimum amount received or a maximum amount spent.
How a limit works
Suppose an exact-input swap quotes 100 output tokens. If the application defines a 1% tolerance as a reduction from that quoted output, the minimum received is 99 tokens. This assumes the quote already accounts for swap fees, excludes network fees and ignores rounding. If execution would return less than 99, a correctly enforced minimum-output check reverts the swap.
This setting is not a fee and does not mean the transaction will necessarily lose the full permitted amount. Different applications can calculate and display tolerance differently, especially for exact-output trades.
The trade-off
A tighter limit restricts adverse execution but can cause more failures when prices move. A wider limit accepts worse outcomes and may increase exposure to sandwich attacks. A reverted on-chain transaction can still consume network fees.
Price impact is the effect of the trade itself on the market price and may already be included in the quote. Raising slippage tolerance does not remove that impact, create liquidity or guarantee execution.