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I am currently about finished with development for a system that trades CL intraday. It enters on a 2-Minute Candlestick chart. I am in the last few steps of modeling and need to create a realistic proposal for how slippage could impact the system's performance at various Contract quantities. The system trades between 9:30 - 11:30 EST.
All entries and profit targets are Limit Orders. All stop loss-exits are Stop Market Orders.
I've built and currently trade one other system for ES that is similar, but I don't personally have much experience with CL. I understand that when trading 1 contract on a 2-Minute chart (assuming not around important data/market events), I shouldn't typically get more than 1 tick slippage on Stop Market exits. Limit Orders should be filled without issue. How does that scale with more contract?
Can I still expect only 1 or maybe 2 ticks slippage on 5 contracts per trade? 10 contracts? 20? How about the ability for a Limit order to fill with 5,10,20+ contracts?
I am hoping somebody who is more experienced in intraday CL trading can give me some insight on how slippage scales with contract quantities. Thank you!
Can you help answer these questions from other members on NexusFi?
Trading: Primarily Energy but also a little Equities, Fixed Income, Metals and Crypto.
Frequency: Many times daily
Duration: Never
Posts: 5,049 since Dec 2013
Thanks Given: 4,386
Thanks Received: 10,206
1,2,5 or even 10 lots, slippage should be the same. Even 20 most of the time should still be 1 tic, but if your unlucky some of your order could be 2 tics. Of course if you try and execute anything during the DOE inventory report, slippage could be significant even on a 1 lot!
As always in backtest I would only assume a limit order is filled, if the price is exceeded, but this isn't as important as futures with much deeper order books.
Wow, that's crazy to me that 10-20 lots can be traded on a 2m chart with little more than 2 ticks slippage. That's so good. Slippage doesn't threaten the viability of the system, but I was a bit disheartened by my initial assumption that I may need to project 3-4 tick slippage per trade on 10 contracts. This would be a bit frustrating, as the average trade risk (R) value is about 13 ticks, so 3-4 is a big loss, and would really stretch some of the drawdowns.
I do indeed assume no fill on trades where the Profit Target Limit Order is not passed. Thankfully, this rarely happens.
So, that's pretty good news to me. Thanks so much for the reply.
Trading: Primarily Energy but also a little Equities, Fixed Income, Metals and Crypto.
Frequency: Many times daily
Duration: Never
Posts: 5,049 since Dec 2013
Thanks Given: 4,386
Thanks Received: 10,206
Crude can and does move fast, but the order book normally is 20-50 up, 10+ layers deep, so there should be little difference in your slippage for 1 lot vs 10. I'm assuming that your fast enough that would be 1 tick, but if your trading on a 2000 era laptop on a dial up connection in Uzbekistan that may not be the case!
Just taking a look at the book right now (see attached) but I think as long as you're trading front month in a normal market you will have a tough time getting 3-4 ticks of slippage on a 10 lot.
Now, if you're sending a 10 lot market order right after the EIA report or some other fast market, you could easily have 3-4 ticks slippage if not more!
Take care,
Mike Murphy
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