estimated slippage in percentage terms

if you enter all market orders on stocks that have heavy volume, what is the estimated slippage in terms of percentage?

Thanks

 

It varies widely, it could be 0% with price improvement, or up to 2% if the market maker / specialist cheats ya big time.

 

What specialists/market makers?

 

It's really about price elasticity; decreasing demand as price is increasing. Using price impact models (e.g., by fitting sum of exponentials, cubic spline, etc to either side of the order book) you can determine the immediate slippage and projected slippage.

 

I'm aware that it varies, what is the average? The average takes into account for differences

 

How do you guys usually handle this? Besides limit orders that is.

 

i was reading in the trade station forums that the average slippage was .03. But i'm not sure what the value of the stock was when that was said

 

The answer depends on the share size of your market order. For small share sizes (100-500 shares) your average slippage will be small.

For example, I trade Nasdaq and NYSE stocks with average daily volumes that typically exceed 500k shares per day. Over the last 20,000+ market orders, my average Nasdaq slippage is about 0.2 cents per share (with average share price of $29 per share => avg percent slippage = 0.0069%), and my average NYSE slippage is roughly 0.5 cents per share (with avg share price of $65 per share => avg percent slippage of 0.0077%) .

To summarize, the slippage is not much, unless you are dealing with large orders relative to the liquidity of the stocks you trade.

 

How does the slappage % change with order size?

 

Isn't slippage just the difference between the estimated and actual transaction cost? If you fit a curve to model the book, you can approximate the instantaneous slippage of any size order.

Example:

Order book, ask side.

PRICE SHARES
38.00 100
38.01 200
38.02 300
38.03 400

By fitting an exponential regression function:

y = a + b*(exp(c*x)-1)/c

where

a=37.9999381629324
b=3.552954794315719e-005
c=0.003415835246032454

you can now estimate price based on any size between 100-400.

X Y
100 38
110 38
120 38.01
130 38.01
140 38.01
150 38.01
160 38.01
170 38.01
180 38.01
190 38.01
200 38.01
210 38.01
220 38.01
230 38.01
240 38.01
250 38.01
260 38.01
270 38.02
280 38.02
290 38.02
300 38.02
310 38.02
320 38.02
330 38.02
340 38.02
350 38.02
360 38.03
370 38.03
380 38.03
390 38.03
390 38.03