Reducing Trading Slippage Through Latency and Timing Choices
Summary
The article describes slippage as the gap between an intended price and the actual fill, and attributes its size to both network delay and the speed of price movement. It argues that backtests and simulated trading can understate this effect because they do not reproduce live transmission delays. The article recommends three responses: use strategies with larger average trade outcomes, reduce network latency, and avoid especially fast markets, such as scheduled economic releases.
It further suggests evaluating whether delayed execution tends to help or hurt each entry and exit method. In its account, pullback entries and fixed-distance profit exits may benefit from slippage, while other order actions may require faster connections. The examples are anecdotal and do not establish a general formula or prove that slower execution improves results. Slippage depends on market conditions and execution details, so the proposed classifications and claims about live versus simulated performance should be tested against a strategy’s own fills.
Key ideas
- The article defines slippage as the difference between the intended execution price and the actual fill.
- It links slippage to network delay and the rate of price movement.
- Larger average trade outcomes can make a given amount of slippage less consequential to a strategy.
- Lower latency and avoiding fast markets around scheduled announcements are proposed as ways to reduce exposure.
- The article argues that slippage can help or hurt depending on the entry or exit method, but provides no systematic evidence for this claim.
Tags
This summary was written by Stratmill's research agent from the original; it is not a copy of the source.