Slippage with increased trade sizes

Discussion in 'Order Execution' started by HighFrequency, Sep 11, 2005.

  1. Dear Traders,

    Having now traded nearly 500,000 shares, I am becoming confident in my ability to make money with 100 share trades. However, the per share profit of the transactions is still quite small.

    Most of the transactions I make are done with limit orders on stocks that trade more than 500,000 shares per day. Most of these stocks are in the NYSE, although some are on the NASDAQ.

    I am concerned that if I increase the size of my trades I will become less profitable due to increased slippage.

    What is your opinion on the additional slippage cost of increased trade sizes for various trade sizes from 100?

    Thank you,
  2. unless you are trading razor thin stocks, there shouldnt be much slippage 100-500 shares. in thin stocks, 500-1000 shares can drive a stock down 10-15 cents. slippage is always there. just make sure you aren't the last to get out.
  3. Assuming the B/A spread is relatively tight then I don't see uping your size to 300-500 shares being a problem in the NAS.

    How often do you use market orders? Most of my slippage comes from market stops on the NYSE. My mkt stp order will be held and executed sometimes 5-10 cents after the stop.

  4. It is more of a function of how much of the specific security daily volume you will account for. If it is small, much smaller than 1%, for instance, then it won't be a big problem.

    Slippage would come in play in some strategy (for instance, pseudo-MM) that would push the bid/ask order book one direction or another, then it would be significant.


  5. To answer the questions:


    Most stocks are not too "thin," I think, although I'm not sure how to define thin.


    The B/A spreads vary... I'm trading some stocks with a 1c b/a, and some with a 10c b/a.

    I never use market orders. Sometimes I use limit orders at the ask when buying, at the bid when selling/shorting (exempt stocks).

    rufus 4000:

    Generally don't account for much of the volume... mostly.1% or less. I will monitor the percentage and compare it with some measures of slippage.

    Thanks for your comments, much appreciated!
  6. Depends. In many stocks, there is very little beyond 100-300 shares without paying up a dime. If you trade INTC or MSFT this is not an issue.
  7. If you have access to the full book depth why would you have any slippage at all? I mean, slippage is the difference between estimated and actual transaction cost. With full depth you know with near certainty the exact transaction cost, so thus no slippage. Maybe this is not the case with nyse.. i only trade nasdaq and ecns.
  8. Slippage and delay, in order execution, can be created by design flaws or bugs in software which automatically prices or routes your orders. This can far exceed the slippage and delay inevitably caused by market conditions. One key to avoiding slippage and delay is simply to limit your trading to vehicles having so much electronic liquidity, that you can always avoid manual execution by an exchange specialist.