Thought about slippage

Discussion in 'Order Execution' started by Bluegar3, Oct 28, 2007.

  1. Spread
    50.00 * 50.04

    * If you enter all your trades at market your slippage round trip in this situation will be -.04.
    * If you enter all your trades at Limit and are FIRST ALWAYS to be filled your slippage round trip in this situation will +.04

    Your strategy is one such that you'll be entering limit orders and will be very close to first in the queue to be filled and "say" you find that your average slippage is +.04 (so you GAIN the spread).

    You run a backtest and it says that Average Trade Net Profit is .10. On the backtest say you enter at the close of every bar so you get the closing price. What I want to know is if your backtest yielded .10 and your strategy gains +.04 in slippage is your expected profit likely to be .14, or when you backtest is the backtest like "getting filled on the bid if buying / filled on ask if selling" so in that case your expected profit would be .10 because the .04 is already accounted for in the backtest? I hope that's clear

    Please do not respond saying you can't assume +.04 in slippage. I know that!
  2. Does your simulation show the details of any trades? The trade log might show what is going on.
  3. bellman


    You can guarantee or expect the simultaneity of fills on both sides of the spread.
  4. the details are just the close of "a bar"
  5. MGJ


    Why not do the experiment right now? Make some trades and observe what slippage is actually experienced in real life with your actual orders (not theoretical approximations) and the actual market behavior (not a theoretical approximation).

    Maybe the situation is better than you imagine, due to details you don't yet know about and haven't typed in this thread. Or maybe the situation is worse. One way to find out is to try it and see what actually happens.
  6. You're not looking at spreads properly.

    Let me ask you this: If I lift an offer, and at the time I press the button, the closest bid is 10 cents away, however instantaneously (under 1/4th of a second) after buying there are ECNs paying 20 cents up and I am 20 cents in the money. Did I "pay" a spread? Did the guy whose offer I took "earn" a spread? Spreads aren't a cost.