Intelligent way of finding out slippage?

Discussion in 'Order Execution' started by mizhael, Jun 29, 2009.

  1. Hi all

    My understanding is that there is no way to estimate slippage in paper trading, right?

    So we have to use real money to trade to estimate slippage? How to do that optimally?

    We would like to set a Stop loss market order and test the slippage.

    Thank you!
  2. Hi Mizhael,

    How do we optimally estimate page count

    responses, based upon keyword topic

    queries? Do you suggest lift charts or ROC?

    Thanks a lot!
  3. Market Depth
  4. A more important question is what are you going to trade? What market, average volume, etc.
  5. indices futures around world... say US, European, Asian markets, etc.
  6. But this still doesn't answer how to optimally get an estimate of average slippage without losing too much real money in testing for slippage...
  7. S&P 500 futures is as liquid as it gets. The DAX and Nikkei are very reasonable. The Chinese and Indian indexes I would be most worried about.

    A thing about slippage, particularly in other countries, is that it may have to do more with the quality (perhaps ethics) of your broker.

    As for testing slippage, no "simulation" will give you precisely accurate results. Perhaps you can ask other ET members that have ES journals about slippage in "x" type of market condition and the amount of contracts they trade.

    (I trade equities, but don't really trade ETF indexes because they are mainly leaders.)
  8. You may be able to use Level 2 Data to figure out how many contracts you can get at each level.

    You would know how many contracts you need for your position size and you will know how many you can get at each level of the order book. You can then say something like 'on average, at hh:mm I can move xx # of contracts with an estimated slippage of $$ (or xx points)'

    I've previously done this. While its not perfect its better than a swag.

  9. In anything else that very liquid US and European futures or stocks, estimate about 10% to 20% of your intraday simulation profits to go to slippage. Short term position trading I would say about 5% to 10%. trend following you don't care, isn't that nice?

    Some strategies do not suffer that much from slippage. Example, limit orders for entry and exit plus buying at the ask and selling at the bid.

    Market orders, especially at the open of a bar to enter and at the close to exit manage to kill very good strategies in real trading. It is amazing to see the wide divergences between simulation - even with slippage estimation - and actual results.

    Do not even think to trade Asian futures in high frequency. They are not stupid there. Some guy with a turbine will slip your market order ticket enough ticks to eat up all your profit.

    Slippage is a real enemy.