Execution quality: when is your broker the reason your strategy fails?
A strategy can be sound and still lose to execution: wide spreads, slippage, requotes and slow fills each take a cut. Separating strategy problems from broker problems requires measuring both.
How do you tell?
- the execution metrics you track
- how you benchmark your fills
- the strategy you saved or killed after checking execution
The bid, ask and slippage guide defines the metrics.
Background: Bid, ask and slippage: why your order fills at a different price
Why buy trades open at one price and close at another, why a stop can trigger when the chart never touched it, and how slippage happens.
Why did my stop-loss trigger when the price on the chart didn't reach it?
Charts usually show the bid price, but a sell position's stop is triggered by the ask. If the spread widened, the ask could have touched your stop while the bid line stayed away from it.
What is slippage?
The difference between the price you expected and the price your order was filled at. It is most common in fast or thin markets, such as around news releases.
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