FIGURE 1: COMPARING SLIPPAGE. Here you see the results of two platforms using the exact same live orders placed at the same time with the same settings.
REAL WORLD
The Devil Itself
Slippage is one of the biggest problems for traders to overcome. While there are no ways to defeat slippage completely, here are four ways to decrease it significantly.
For many traders, slippage is the single biggest problem. For those who are not trading reversal strategies where they can be easily filled with limit orders, slippage, which is also known as price deviation, can easily destroy a strategy.
It’s a trader’s catch-22: markets are designed in such a way that if we want a sure fill, we need to go with stop market/market orders. But if we place a stop market order, we will suffer a slippage. In other words, slippage is the difference between the filled price and the desired price, and it represents the narrow path on which traders must walk.
There is no way to completely eliminate slippage, but there are ways to decrease it significantly. Here are four ways to do so.
Liquidity
The bid-ask spreads tend to be much lower for stocks with larger volume. I don’t think I am revealing a big secret by saying that trading large-cap stocks or at least stocks with an average volume of more than a million will provide you with much better fills. And there are enough of these stocks, not to mention other futures products and forex pairs/crosses. But I specialize in stocks, and my experience comes mainly from trading them, so that’s what I will stick to discussing here.
FIGURE 1: COMPARING SLIPPAGE. Here you see the results of two platforms using the exact same live orders placed at the same time with the same settings.