I have been learning about the meme coin space and one thing I noticed was that many people end up losing money. EVEN AFTER MAKING GOOD TRADES! And studying their trades I came to the conclusion that many of them don't take certain considerations into account. So I will cover a few pointers you should take a look at before making a trade that can help you understand these things that drain small accounts. There a few meme coin platforms out there but I will be focussing on pump.fun, but I'll try to keep the concepts universal so they apply to pretty much any asset. Actually these concepts apply to a high variety of financial assets but there a re to factors that make them stand out in this case: volatility and the fact that this article is oriented towards small accounts.

The first thing to note is that I will not be working with the pump.fun site, I will be using a third party tool. There are many out there an I frankly don't have much experience on them but these tweaks can be done on pretty much all of them. The tool I use is Photon while digging around for tools I found it to be very complete and with an intuitive interface so it is the one I will be using for the examples. You can use it on mobile and desktop with the Phantom wallet. It works with  the tweaks done here will be in the settings panel of the Photon tool. It is also worth mentioning that the cryptocurrency I will be using for example's sake is Solana which at the time of writing as ~$195 and I will be using this rate.

Slippage

The first topic I will be covering is slippage, which it seems many find confusing. We can see that the default value for max. slippage in the settings page is set to 20% and most people just leave it at that without ever changing it.

This is the first stone new traders with small accounts stumble upon. And this is especially a problem in a high volatility market such as the meme coin space. I don't want to give a long sermon on what slippage is being I don't think it is that much of a complicated concept. Slippage in short is the difference in price between the moment that the buy order was placed and the time the order is executed. So say that you want to be one token that is valued at $1. So when the price of the token hits $1 you press the buy button and place the order. Orders aren't placed instantly,they take time to go through, especially on smaller accounts where we will try to keep bribery amounts low (more on that later). So say in the short amount of time that the order was actually put through, the price moved to $1.20, we'd say you had a 20% slippage. A consequence of this is you are buying less tokens that you think you are. I like to look at this in the term of effective investment which is what you are "actually" investing. So when we say we have a maximum slippage of 20% we are say that we will accept a price 20% worse than the one we were initially buying at and if the slippage is more than 20%, the trade won't be put through. Let me illustrate this mathematically to put it into perspective. 

So let's assume you are only looking to invest 0.102 SOL which corresponds to about $20 (taking into account that you should only use a fraction of you capital when making a trade). Say you want to buy a token that is currently at $1 when you place the order. Having a max slippage of 20% and there being a very high volatility in the market, there is a chance that you will end up buy said token a $1.20. You were expecting to buy 20 units of that token but since the price has change you will be buying less. Let's see how much less:

So as you can see, with this 20% slippage you'd be only buying ~16.6 tokens instead of the 20 you were initially intending to buy. So you would only be "taking in" 83% of your original position. So it is recommended that you set a slippage that doesn't effect your position size. I personally use 5%, 7% maximum. There is actually a general formula which we will look at next that shows you based on slippage what your effective investment is:

Where P is the initial target price and S is the slippage. And this formula would give you what percentage of the asset you are actually buying (or selling, slippage also applies to selling but in the other direction). We can see that when taking a lower max slippage setting gives us more purchasing power. Taking my example of 5% we see that the effective investment is > 95%.

Fees

Next we will be looking at another thing that could drain your account without you realizing it. These are the transaction fees and they are set by default under the "auto" setting in photon.

This and bribery are set with automatically calculated values when this setting is set. I recommend switch off this option so you have more control. However, I recommend not lowering this value too much since it could reduce significantly the speed of your transactions, and sometimes your transactions might not even go through. Also slower transaction speeds mean more chance of higher slippage, and if you lowered your max slippage setting that will give you a high chance of your transactions not going through at all. Lowering it or not, it should be included in your model when taking decisions on investing, especially with small accounts where this is more significant. Going back to this example, we are paying 0.02 SOL which is about $4. This is what I mean when i say this is significant for small accounts. This represents 20% of our $20 initial investment. So, considering there is no slippage and all are transactions are instant, you'd be investing 80% of those initial $20. I know it's overkill but we can show this in a formula:

Notice how this adds up and we can see we are chipping away from are investment. AND THE PRICE OF THE TOKEN HASN'T EVEN DROPPED YET!

Bribery 

Last but certainly not least is bribery. This helps expedite your transactions. I wouldn't recommend lowering this value as there is a minimum recommended value for your transactions to have acceptable speeds. This value fluctuates depending on the demand for transactions and in times of low trade volume goes down and goes up when there is high demand.

In this case it is at 0.03 SOL which would be equivalent to $5.85. Which is insane. In our example of the $20 investment it would represent 29.25% of the investment.