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Expected slippage vs order size
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Expected slippage vs order size

  #11 (permalink)
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Fat Tails View Post
Haha! In thin instruments it is reality, in highly liquid instruments such as ES it may never happen.



Correct, but if you do not get filled, you do not need to bother about slippage. This is lost opportunity.



I may return your favour here: This is simply false.

If you enter on a limit order, the thing you wish is that price trades through the limit, don't you? If you exit on a limit order and price trades through the limit afterwards, it tells you that your exit was well chosen. So in any case, you will be quite happy, if price trades through the limit after a fill!

I think you confused limit orders with stop-market and/or market-if-touched orders.

Let me clarify since you are confused.

I have a limit to BUY 1 ES @1135.00 My order is away from the market. As price moves down to the limit, the Bid is now 1135.00, the Ask 1135.25. Invariably, in order to get a fill, price will have to move down to Bid 1134.75. I have bought at 1135.00, which is now the Ask. The price has moved AGAINST me by a tick, since if I wanted to sell immediately, it would be at the bid. This is what I mean when I say price has moved through my limit. Generally speaking, price will have to trade through a limit to get a fill. That movement is AGAINST not with the trader.

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  #12 (permalink)
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Zoethecus View Post
Let me clarify since you are confused.

I have a limit to BUY 1 ES @1135.00 My order is away from the market. As price moves down to the limit, the Bid is now 1135.00, the Ask 1135.25. Invariably, in order to get a fill, price will have to move down to Bid 1134.75. I have bought at 1135.00, which is now the Ask. The price has moved AGAINST me by a tick, since if I wanted to sell immediately, it would be at the bid. This is what I mean when I say price has moved through my limit. Generally speaking, price will have to trade through a limit to get a fill. That movement is AGAINST not with the trader.


Isn't what you describe just a pullback trade in the direction of the prevailing trend?
For example the trend is long (however you identify it) and your entry is on a retracement so you want price to pull back against the trend to get you in at a better price/lower risk. A limit order placed in advance anticipating the retracement works well in that case.

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  #13 (permalink)
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gulabv View Post
Isn't what you describe just a pullback trade in the direction of the prevailing trend?

Yes, it is.

My point, however, was that price has to trade through a limit order to get filled. Of course, if you have a limit order sitting on the book for a long time and away from the market, there is a slim chance of getting a fill without price going through.

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  #14 (permalink)
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I think Fat Tails was highlighting that option b could be true or false, depending on your viewpoint. I often exit positions at climactic points and price is often better than my expectation. On the flip side, entering a position on a limit price requires a trade thru the limit price, as you've stated.


Zoethecus View Post
Yes, it is.

My point, however, was that price has to trade through a limit order to get filled. Of course, if you have a limit order sitting on the book for a long time and away from the market, there is a slim chance of getting a fill without price going through.


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  #15 (permalink)
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Zoethecus View Post
As an active trader in both robust and thin instruments, who has used both limit and market orders, I can attest price will invariably trade through a limit after a fill. In other words, price has moved against me after a limit is filled.



Zoethecus View Post
Let me clarify since you are confused.

I have a limit to BUY 1 ES @1135.00 My order is away from the market. As price moves down to the limit, the Bid is now 1135.00, the Ask 1135.25. Invariably, in order to get a fill, price will have to move down to Bid 1134.75. I have bought at 1135.00, which is now the Ask. The price has moved AGAINST me by a tick, since if I wanted to sell immediately, it would be at the bid. This is what I mean when I say price has moved through my limit. Generally speaking, price will have to trade through a limit to get a fill. That movement is AGAINST not with the trader.

Zoethecus, you are playing mind games. Now you simply change your assumption, because you were wrong.

If you look at your first comment, you clearly attested "that price invariably trades through the limit after a fill"- Applied to your buy at 1135.00 this would mean

(a) fill at 1134.75
(b) trade through the limit above 1135.00

And this is exactly what the trader hopes for!

In your second comment you stated. "Generally speaking, price will have to trade through a limit to get a fill." So let me know whether you think that you get the fill before or after price trades through your limit.


Let me also return your second favour: I believe that you are confused! (just answering with your own politeness )

What about exiting this mind game? It is a loser....

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  #16 (permalink)
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If anyone whos native language is English and doesn't understand what I was trying to convey feel free to PM me.

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  #17 (permalink)
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Snoop View Post
entering a position on a limit price requires a trade thru the limit price, as you've stated.

Thank you, Snoop. Any real (as opposed to sim, paper, or academic) trader knows this.

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  #18 (permalink)
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Zoethecus View Post
If anyone whos native language is English and doesn't understand what I was trying to convey feel free to PM me.

my native language is not english, but what you're saying is 100 % correct imo.

I can only see a couple of possibilities you can get positive slippage.

- with market orders (doesn't happen much, but it certainly can)
- with limit orders, the only way I can see positive slippage is when a market opens. example: you want to buy a stock at 75. the market opens at 73. then your execution will be 73. or of course if your buy limit is at the offered price, and a seller joins the party before your order hits the market, you might get some positive slippage. (similar to positive slippage with market orders)


Last edited by Silvester17; September 29th, 2010 at 02:47 PM.
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Hopefully I don't get hit by any errant punches ...

Interesting study from Fat Tails, but it's a bit dated imo. Data was based on a traditional IB taking orders over the phone and relaying to their executing broker. Phone calls, lunch, etc were often the cause of slippage then.

Outside of the factors listed previously, I think one of the greatest "causes" of slippage is perception. Is the trader actually seeing an accurate order book? Is the trader executing at popular trigger points or at news releases? What type of strategy and profit expectation per trade is being employed? I personally believe scalpers suffer slippage the most. I'm not a scalper so if I've paid 3 ticks more than I expected but end up making 6 pts on the trade - you won't hear me complain.

Back to the original question, it's a good one that should be considered by those who backtest. (I don't, not of use to me) Introducing more realistic slippage into system testing and optimization will produce more realistic results - but those results will more than likely be unsatisfactory from a profitability viewpoint.

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  #20 (permalink)
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Lqiuidity during news release


Chart below shows impact of liquidity during news release. If you had a long position on TF you would have been stopped out. The deep liquidity of ES protected you against amateurs trading the news release.

Liquidity matters!

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Expected slippage vs order size-es-12-10-1-min-_-tf-12-10-1-min-30_09_2010.jpg  
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