Slippage for stocks

Discussion in 'Order Execution' started by wizardx, Jul 1, 2005.

  1. wizardx


    Say you're trying to get the closing price of a particular stock. You don't want to use MOC orders, so you try to execute as close to 4:00 pm as possible.

    In this case, is there any reason why you would tend to have negative slippage?

    Say your order is executed at 3:59 pm. In the final minute of trading, the stock can move either up or down with equal probability because of such a short time period, so your slippage can be either positive or negative. Do you agree?

    Assume that your order size does not move the market.
  2. If you sell on the bid and the last print of the day is on the ask, it might just be a bit higher/different than the price you got.

    On low volume stocks, the spread will sometimes widen in last 10 minutes, depending on the day's activity.

    Hard to say.
  3. Do not agree with you, wizardx.

    Specialists are criminals. They decide what price you will get, if you route to an exchange. If you are buying, you will tend to get a price higher than the ask. If you are selling, you will tend to get a price lower than the bid. You will sometimes get "price improvement", but in the long run, slippage will outweigh it. The specialist taxes you so that he can pay for his yacht, his children's tuition, and for upkeep of his wife and girlfriend.

    Another problem is that if you are "dumb money", you will tend to buy when most others are buying, or to sell when most others are selling, with the result that even if the specialist were not stealing from you, your results would still be worse than if you chose your direction randomly, as in flipping a coin.
  4. wizardx


    Say at 3:59 pm, the market is at

    30.00 bid
    30.01 ask
    1000 x 1000

    I buy and execute 1000 shares at 30.01. Now there's 1 minute left until the close.

    Why would the closing price tend to be lower (negative slippage) or higher (positive slippage) than 30.01?
  5. Like I said, most will depend on the volume and spread of an individual stock. The more liquidity, the closer you'll come to getting the closing price.

  6. Merlin


    Market imbalances, usually driven from the action of the day and days prior.
  7. wizardx


    This imbalance can be of either direction, so the price can be higher or lower, correct?
  8. alanm


    With regard to listed stocks:

    Primarily, MOC imbalances, and the people who are either riding or fading them, can result in some big (0.5-2%) gaps between the market just before the close and the actual closing print. This gap can be in the same or even in the opposite direction as the original published imbalance.

    Also, when someone in the crowd (or on an ECN) suddenly wants to buy or sell a ton, 30 seconds before the close.

    There's also the occasional news release at 15:59:xx ET that creates havoc. There can also be news releases at 16:00 that will cause the ECN market to move violently before the NYSE closing print. I'm surprised there isn't a mandatory quiet period just prior to and after the close - this type of thing isn't good for anyone.

    Why do you absolutely need the "closing" price? Why don't you want to use MOC orders?