Please help my dumb a$$ with this slippage question

Discussion in 'Stocks' started by ProgrammerGuy, Aug 22, 2007.

  1. Okay i'm trying to find out how to calculate slippage.

    I took several samples of the average ask - average bid.

    Say that for a stock XYZ the average difference between bid and ask is $.03.

    What is your average slippage to GET IN and to GET OUT of the stock? $.03 or $.06????
  2. assuming you get all your fills at the current bid and current ask
  3. pbj


    You can easily see that the round-trip slippage is $0.03. Imagine buying at the ask and immediately selling at the bid. You are immediately $0.03 per share poorer minus commissions.
  4. interesting. I see second posters point.

    But, i figure you are getting slippage in both directions. Imagine you put in market buy order when last price was at bid, then it jumps and you get executed 3c above.
    That is 3c slippage in 1st direction. Upon selling, you put in market sell at ask price, but it jumps to 3c below on fill. I figure slippage should be calculated relative to the current price quote and how far the spread is between your order entry and the actual execution.

    From a purely mechanical trading system philosophy, which would include market orders for guarantee, I would figure slippage works in both directions.
    Thus = 6c in example.

    "assuming you get all your fills at the current bid and current ask"
    If this assumption was simultaneous, you would have zero slippage.
    i.e. buy at current bid ... get filled.
    sell at current ask .... get filled.
  5. thanks, I just wanted to make sure... not the smartest guy
  6. many are confused by this, not sure why, probably because the dimwit sitting next to him is also confused.

    You pay the spread once, worst case.

    You can also MAKE the spread or pay no spread, depending on how you enter and exit.

    No one, not even an imbecile like Longhorns pays the spread twice.

    On second thought, he might
  7. You do have to wonder, how can anyone that doesnt see that be expected to trade well? This is the EASY stuff.
  8. is the spread generally larger in the morning? or no?
  9. larger during high volatility - news etc.
    just look at currencies - spread can go insane before a report/rate decision...
    so often in the mornings there are fatter spreads as a direction unfolds BUT there is generally an increase in volume which can reduce the spread...
    All in my experience.
  10. so you would kinda say that it is the same? more vol which increases it, more volume which reduces it.

    well we'll see I'm going mark spreads on like 250 stocks at certain times tomorrow
    #10     Aug 23, 2007