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What % of daily volume in a trade do you start to run into significant slippage?

  1. I trade smaller stocks and the biggest elephant in the room for my system is at what point does slippage start to make my system invalid or become so significant it eats up my profits.

    I assume the logical way to think about this would be to think of it as a percentage of total daily volume. I also only do "at open" and at "close orders" so am trading at the highest volume times of the day.

    So...considering the following example....Stock XYZ is trading at $5 and trades 1,000,000 shares a day. Very roughly, how many shares traded at open or close starts to cause significant issues?
     
  2. Slippage is a function of order size and liquidity.
    As you pointed out, liquidity is cyclical too.

    So How much ? is conditional on specific situation.
    It's too much when it becomes too expensive.
    And again ... Expensiveness is relative ...

    I'd consider it excessive if it takes 5 ticks to be filled.
    But it's my point of view only. Because 5 ticks becomes 50 ticks.
    Quick enough if everyone is caught by panic or any liquidity crisis.

    To be able to quantify how much liquidity lies at the bid & ask is insightful.
    I use a Deep Of Market to place my orders, so I can see the depth.
    Sometimes very big orders sit there, if you're lucky, it's for you.
     
  3. Ideally less than .5 % round trip. I have noticed that sometimes slippage is in my direction but I havent gathered enough data to see what averages out to.

    Has anyone here ever traded 2.5% of the daily trade volume in one trade? What happened?
     
  4. I have a simple rule that may sound a bit odd but I will explain.

    I trade (long/short) ABSOLUTELY no more shares than the 22 day average volume of the stock/780. ( MAX Shares <= (22 day average VOL/780)). There are 780 30 second periods in a trading day. I want to be sure that I can liquidate my entire position in 30 sec or less. Usually this means I need a volume of about 780,000 or more for whatever I am trading. Now I don't have the problem you have anymore. I used to sweat when I needed to liquidate my position trading a large volume of the daily volume. Follow this rule and sleep better.

    My .02
     
  5. I like your thought process but I may be limiting myself if I follow that exactly. My orders are only at open and close and the volume is significantly higher than the average during those times. I was trying to find a study I was reading earlier that I believe said 70-80% of volume is at the open and close and is trending higher. BUT...I should still be able to apply your logic to come up with something.

    If we assume 70% of the volume is in the first and last hour on a 1,000,000 volume stock

    1,000,000*.7=700,000

    Divide by 2 hours worth of 30 second intervals

    700,000/240=2, 916 shares
     
  6. Push it to the Limit;
    [​IMG]
    don't worry so much about becoming so big that you will slosh the market around ;)
    ...that's a good problem to have, assuming you even get to that point.
     
  7. Well its more that my backtested system assumes getting the open and close price within reason. Im just not sure how bad slippage can get and at what amount of volume.
     
  8. I try to be around 5-8% of the auction, it's quite high as others have said to never go above 1%.
    We can't really know what the slippage would be as your order can move the price which in turn triggers orders at other price levels.
     
  9. I'd care more about knowing what the fair value of the stock with decent confidence than than what % of volume you are. If I was pretty confident of my model, I'd take a big % of volume at a good price.
     
  10. It's simple to measure the actual volume over the last 100 days and come up with an average or sort and rank the values ....or perform any kind of statistical analysis you're interested in. If you're not able to do this yourself then.... ask yourself why and make the appropriate changes.
     
  11. You're not saying anything, "big % of volume at a good price" is like saying "I like to buy low and sell high". He's asking what the percentage is.
     
  12. Correct...I dont care about the fair market value of the stock or even what the company is. My system is all statistically based but assumes I get the open and close prices.

    So an update, the last couple of days I have had 1.5% slippage at the open only trading about 13k in a trade. Stocks have been about $8 and daily volume around 1 million shares for the day.

    Suretrader does not allow "All or nothing" trades so my trades have been going through quickly but in about 15 segments. This morning (Shorting) the first segment was only 1 share and at 6.13, the next was at 6.1 for 100 shares with a gradual climb up to 6.08. it almost seemed like some buy orders were yanked between 6.13 and 6.1 and then resubmitted very quickly to get the lower price based on my large short block sitting there.

    Thoughts, or any strategies to reduce this slippage?
     
  13. I thought you are participating in the opening and closing auction? Continuous market is a different story, I wouldn't trade it in the first 4 minutes due to the spread.
     
  14. Thanks for the replies d08..I think there may be some gaps in my understanding.

    Im currently using suretrader and I originally was doing my opening and closing orders with "At Open" and "At Close" orders. However, occasionally these orders would initiate on their own early. For example, an At Open order would suddenly go through 5 min before the open or an At Close order would go through in the middle of the day. Suretrader was pretty useless in telling my why this is happening and just says its an error.

    So my solution was to open market day orders in premarket so they were pushed through as soon as the market opens. If Im doing this does that mean Im not part of the open auction?
     
  15. Better move to a reputable broker, what you're describing doesn't make sense to me. Only way an opening auction order can execute mid day is if the stock was halted until that moment. Opening auction can't ever be before 9:30:00 EST. For IB you need to find two fields "time in force" and "order type" to control this, I can't speak about SureTrader because I've never used it. Ask them about opening and closing auctions, they need to know about that and if they can't tell you then they're completely incompetent.
     
  16. Theyve been pretty much a horror story and have cost me quite a bit of money, however, I can avoid the pattern day trader rule and my account is still increasing. I need a bit more to switch. My system is somewhat volatile and can have 35% drawdowns. I dont want to switch and then have it drop down below the pattern day trading minimum.

    The whopper of an experience I had with them is when they conducted a 1.5k wire transfer out of my account that I didnt initiate. I contacted them and they said it was a mistake and put it back but wouldnt give me any more info. They wouldnt even give me free trades for that stunt.
     
  17. Why not measure the actual volume? The solutions I offered are tainted with tough love (for good reason) but that doesn't mean they're not the most accurate, timely and easy to implement....or that u can't modify your wind up so future solutions aren't peppered with bait that takes you off point and away from the truth which is knock and the doors often open.

    Bait ...but seriously also. Your estimated volume, above in the quote is ridiculously silly. Measure it and u will see.
     
  18. Your draw
    It means you will not get the opening print.

    Probably you will have greater slippage than you think.

    Your 35% drawdown mention does not have enough information but I will speculate that you should drastically drop your position size; take your time with this.
     
  19. Far too many shares.
     
  20. What solutions have you offered? Yes, people can measure actual historical open auction volume (assuming they have access to bloomberg). So you find out a stock trades 40k shares on average on the open. You decide you want to trade the max size that will result in < 0.05% slippage. What size is this? That's what the OP is asking, and it's not an easy question to answer.
     
  21. Limit Orders.
    Always.