True, but (1) you really can't avoid it, and (2) insignificant compared to what you are playing for.
Rolling forward futures contracts
- Thread starter andrew black
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True, but (1) you really can't avoid it, and (2) insignificant compared to what you are playing for.
You can avoid it... or at least significantly reduce it.
Agreed (although I'd argue it's comm + spread that matters) - but it depends what you mean by 'significant'. I paid about 0.5% of my account value in commissions and 0.5% in slippage (for both rolls and execution; I don't seperate them). I'd gladly reduce them further from 1%. I'd be pissed off if they rose to 2%. Other people might not think that 1% is significant, but I do.
GAT
Well, you tell me. Can you really "jump through hoops to save a tic"? I dunno, never tried. Figured getting my play right was waaaaayyyy more important and bigger than gnashing over the minutiae of "the fill". (I know of this because I once missed a $600K move by missing the buy price by $.10)
Still, you're always (?) "paying the spread". How do you avoid that? Some say they "want to buy at the bid"... but in reality they don't get filled until their "bid" has become the market's "ask". So what was accomplished?
If there was no point trying to be passively filled then HFT wouldn't exist (or at least would be drastically smaller). All the hedge funds and banks in the world wouldn't bother investing gazillions into improving their execution algos.
In practice you will get filled at the bid if (a) like you say, the market has traded through your price or (b) someone comes along and crosses the spread, and you're first in the queue. If the latter you've saved money at no cost. The success of this enterprise will depend on how likely (a) is.
(Incidentally if I don't get filled and the market moves away from me so I am no longer at the top of the order book, I submit a market order and pay up. That is what stops me from missing out on a big move)
I know from analysing my trading over the last five years that my slippage cost would be doubled if I just crossed the spread every time (and the shop where I used to work had even better figures, as they were trading in much larger size).
So that's the empirical proof that you can, and should try and buy at the bid, and sell at the offer. OK it's 0.5% of my account value I'm saving. Chickenfeed? But over many years that will compound up quite a bit. And in real money it's $2,500 a year. That's half a ski-ing holiday. And like I keep saying that's a certain cost, not a nebolous profit from improving extremely random returns.
GAT
LOL! You aint' HFT. That's an exclusive, expensive club... and you ain't in it.
A ‘spread combo order’ sounds like a ‘synthetic’ spread that still trades two individual legs. In most markets, calendar spreads actively trade, sometimes with lower tick size than the outrights. Take the VIX futures as an example (outright spread 0.05, calendars 0.01). Does IB not support this, or is this what you call a ‘spread combo order’?
‘my slippage cost would have doubled’ - can I check my intuition? Suppose the market is 99-101 (ie, mid of 100) and you want to buy. You queue at 99. Assume there’s 50% probability of the market moving up and 50% probability of moving down (not unreasonable at this frequency). If the market ticks down, you get filled at 99. If it ticks up, you pay up and get filled at 102. That gives an expected fill at 100.50 (99 or 102), or slippage of 0.50 vs mid. If you take liquidity, you get filled at 101, or a slippage of 1.00. This is 2x vs your algo.
PS, I love skiing, so pretty relevant discussion!