Slippage Assumption

Discussion in 'Trading' started by nLepwa, Mar 10, 2010.

  1. nLepwa


    Dear ET,

    I'm trying to model a trading strategy.

    I'd like to buy 1000 shares of SPY.
    I assume I can get commissions of 1 cent per share. I'm not sure what a fair assumption for spread and slippage would be.
    Is it reasonable to assume 4 cents for this?

    Then my cost for 1000 shares would be 5 cents per share. Is that underestimated?
    Does the answer change if I'm not trading SPY but another ETF or stock?

    Thank you

  2. The spread for SPY is usually only 1 cent. If you can your mind and immediately dump the stock, you should be able to get out 1 cent lower. $10 for 1000 shares slippage plus commissions.

    SPY is pretty thick. Trading about over 150 million shares a day these days.

    Other ETFs... they are all different. Some have higher spreads. You probably need to spend some time in front of a level 2 to observe to get a feel for it. e.g. FAS... although the spread can be only 1 cent, when SPY moves, FAS moves 3 to 4 times faster - being an x3 ETF. So you can't just take the spread in consideration. You need to look at the ETF's volatility as well. A base comparison: Take the daily range of SPY for a given day, and compare it to the daily range of that ETF for the same day. You should get a feel for it.