Slippage brainstorm

A

abattia

Slippage brainstorm

If by “slippage” I mean the amount by which an actual order execution is worse than the corresponding “ideal” one, ...

... what steps can be taken to reduce slippage, or the effects of slippage?

Here’s my list:
1. Reduce latency
2. Reduce order size
3. Trade an instrument with greater depth at the bid/offer (and at times when this is the case)
4. Reduce use of market orders
5. Increase use of limit orders
6. Target larger moves over longer timeframes
7. ... ?

Anything else? Any other thoughts/comments?

Also, my broker (MBT) offers traders order routing directly to an exchange/ECN, or (for lower commissions) “internal order routing” whereby MBT crosses the order internally with other customers taking the other side. Can anyone explain what effect these alternatives would have on “slippage”?

Thanks.
 
Quote from abattia:
... Also, my broker (MBT) offers traders order routing directly to an exchange/ECN, or (for lower commissions) “internal order routing” whereby MBT crosses the order internally with other customers taking the other side...
More...

Apologies, but looking into this further, I believe that the above comment in my earlier post was incorrect. Sorry for any confusion ...

MBT apparently offers direct routing, or routing via MBTX.

From what I understand, I can't see how MBTX routing would be a bad thing from a slippage perspective ... ?

Below follows some information about MBTX.
= = = = = = =
Using a variety of order types, MBTX intelligently harnesses the power of direct access trading by scanning market makers, ECNs, exchanges and hidden pools of liquidity for the best available execution. MBTX routes for execution against liquidity on passive ECNs, finds liquidity with market makers, and then uses a combination of active ECNs.

MB Trading believes in always putting the interest of our clients first. Our equity order routing decisions are made on an order-by-order basis in an unbiased fashion. MB Trading receives no payment for equity order flow from any Market Makers and has no vested interest in any ECNs.

Example 1:
An order is placed to buy 1,000 XYZ when the market shows two ECNs offering 300 shares and a market maker offering 400 shares. Normally, three orders would have to be placed on three different routes to get filled as quickly as possible. If only ISLD was used (or any other passive market participant), then the order would sit until a crossing order came along. MBTX, on the other hand, scans the market, finds the different combinations or sources of available liquidity, and routes to the appropriate venue(s).

Example 2:
An order is placed to buy 1,000 XYZ at $20.00 and ISLD and ARCA are both offering 1,000 shares at $20.00. A trader would normally route the order via an active ECN and get filled completely at $20.00. However, frequently there are non-active ECNs like ISLD or other hidden liquidity pools that are offering a better price than displayed on Level II. In this example, lets say that ISLD was really willing to sell 500 shares at $19.995. The trader would not have received that price improvement - unless he/she first somehow found the "hidden liquidity", then sent a 500 share order to get that price improvement, and then traded the remaining 500 shares on an active ECN. Doing so would return a price improvement - but, would also create two commissions...

Because MBTX scans the market, it first would have found the better price and executed 500 shares at $19.995, and then automatically routed the remaining 500 shares to another destination at $20.00... without creating multiple commissions and giving a $2.50 price improvement. MBTX scans the market and seeks the best price in the fastest possible time.
 
Unless you "slippage" is positive...
In other words...
You are capturing most of the bid-ask spread...
Most of the time...
Your chances in the long run are NIL.

That's the biggest mistake people here make...
They assume they can pay...
Commission + negative slippage + cheating costs...
And take money away from Pro Trading Firms.

It cannot be done... your post is oxymoronic.

And "cheating cost" is substantial...
Inside information, front-running, backing away, algo manipulation, on and on...
The SEC simply looks the other way 99% of the time.
 
Quote from abattia:


Here’s my list:
1. Reduce latency
2. Reduce order size
3. Trade an instrument with greater depth at the bid/offer (and at times when this is the case)
4. Reduce use of market orders
5. Increase use of limit orders
6. Target larger moves over longer timeframes
7. ... ?
More...

8. Fractionate orders
9. Look for Times and /or Price Areas that attract liquidity
10. Iceberg
 
Quote from DeeDeeTwo:

Unless you "slippage" is positive...
In other words...
You are capturing most of the bid-ask spread...
Most of the time...
Your chances in the long run are NIL.

That's the biggest mistake people here make...
They assume they can pay...
Commission + negative slippage + cheating costs...
And take money away from Pro Trading Firms.

It cannot be done... your post is oxymoronic.

And "cheating cost" is substantial...
Inside information, front-running, backing away, algo manipulation, on and on...
The SEC simply looks the other way 99% of the time.
More...

How true!

SEC simply look away until they are caught looking away. SEC will deny they looked away, or argue that it is only a few rougue employees who looked away.
 
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