Slippage

B

botpro

Hi,
my auto-trading options system will trade the most active and liquid options (long only) in the US market by using limit orders only. Position size is at least $25k and at most maybe $75k.
Should I still take slippage into consideration? If yes, how much % should that be, and will it be enough if doing this just for one side only (ie. buy or sell side)?
 
Last edited:
botpro said:
Hi,
my auto-trading options system will trade the most active and liquid options (long only) in the US market by using limit orders only. Position size is at least $25k and at most maybe $75k.
Should I still take slippage into consideration? If yes, how much % should that be, and will it be enough if doing this just for one side only (ie. buy or sell side)?
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With any automated option trading system, keep count of your orders entered and your ratio of executed options vs contracts entered. On all US option exchanges, if you enter 390 orders or more per day on average, you will have to file as professional customer which will have you lose your customer priority and add to you costs. And, if you enter too many orders without executions, you might get hit with cancel fees from the exchanges. Those cancel fees vary from option exchange to option exchange.

Bob
 
I'll preface this by saying I've never done any live trading before, so my experience with this in practice is zero. Maybe someone with more experience can come correct me.

A limit order is a guarantee that an order is filled at the given price or better at the expense of a guarantee that it's is filled. Under those conditions, barring any craziness, a limit order should protect against slippage.
 
rmorse said:
With any automated option trading system, keep count of your orders entered and your ratio of executed options vs contracts entered. On all US option exchanges, if you enter 390 orders or more per day on average, you will have to file as professional customer which will have you lose your customer priority and add to you costs. And, if you enter too many orders without executions, you might get hit with cancel fees from the exchanges. Those cancel fees vary from option exchange to option exchange.

Bob
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Thank you very much for this important information. Really, I didn't know of such a rule of 390 orders/day limit for non-professionals.
 
cjbuckley4 said:
I'll preface this by saying I've never done any live trading before, so my experience with this in practice is zero. Maybe someone with more experience can come correct me.

A limit order is a guarantee that an order is filled at the given price or better at the expense of a guarantee that it's is filled. Under those conditions, barring any craziness, a limit order should protect against slippage.
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That's true if seen isolated. But in auto-trading the system generates its signals based on the current price. From that point on until execution there is a time gap of uncertainity.
To possibly compensate that, one could from the own offer subtract (or add) some % (for example 0.1%) as artifical slippage, just as a statistical safety measure to get filled in most cases.
Just an idea I'm planning to add to the code to be on the safe side.
 
botpro said:
That's true if seen isolated. But in auto-trading the system generates its signals based on the current price. From that point on until execution there is a time gap of uncertainity.
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thats not slippage. it's latency. It's clearer if you say to compensate for latency adjust prices. Using the word slippage just adds to confusion.
 
2rosy said:
thats not slippage. it's latency. It's clearer if you say to compensate for latency adjust prices. Using the word slippage just adds to confusion.
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Hmm... but the net goal is the same, at least in my model.
 
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