When does "slippage" become a problem?

Discussion in 'Order Execution' started by heech, Mar 26, 2009.

  1. heech


    I know the title of this thread is insanely stupid... I'm not looking for a straight answer, just some general feedback from those with years of experience in the pits.

    I'm trading an automated strategy, and use fixed entry/exit points. I'm not using stop orders, since I prefer to not expose the presence of these prices.

    So, I monitor (in NT) prices and either go long/flat as prices slips below or above these price points.

    I'm trying to decide at what sized lots, will I start to suffer from *significant* slippage (compared to where I am now). I take liquidity, and am trading mostly NYSE (some NASDAQ) stocks with moderate -> high liquidity.

    Right now I'm slipping a few cents below my entry/exit points, with 1500 share trades. (Retail level stuff.) If I bump up this to 5k, 10k... is there a point where slippage becomes noticeably worse?
  2. wave


    When it gets beyond 1-2% from entry.
  3. heech


    Oh I'd be toast at 1-2% from entry. I'm right now at 0.1-0.2% of entry, and would looking to keep it in that general range.

    I was asking what sized orders do you think I can trade (at market) and still be within that range...
  4. wave


    1% max is your target max on a big fund account using breakouts.
    0.1-0.2 is right for intraday small size trading.

    Look at the bid/ask prints, that will tell you the size that the instrument can handle.
  5. Trade futures, forget stocks. Day trading scalability is tough in stocks. Especially scalping/short term trading. You'll hit the ceiling real quick. With futures (index futs), that ceiling is MUCH higher. Not to mention the better tax treatment, lower costs ect.
  6. heech


    Completely different topic... but whats' the better tax treatment with futures?

    I'm not scalping. I'm trading multi-day, and at a pretty slow rate as well. I'm just trying to figure out how much I can scale my strategy without having slippage eat up all of my profits.
  8. bellman


    The best (and really the only) way of determining this is by trial and error. If you're trading mult-day strategy you would have to be trading a significant % of minute volume to have any effect at all.

  9. When your day trading. Other traders dont care about this issue.
  10. heech


    You guys must be in a different world from me.

    I'm looking at a stat arb opportunity, which I believe will on average return ~2% every month (assuming perfect exits). But I have to make 4-5 trades to make that happen.

    If I slip 0.2% every trade, then that profit is just about gone. Big difference.
    #10     Apr 17, 2009