V.10:1 (9-12): Slippage Cost Of A Large Technical Trader by Thomas V. Greer, B. Wade Brorsen and Shi-Miin Liu
Product Description
Slippage Cost Of A Large Technical Trader
by Thomas V. Greer, B. Wade Brorsen and Shi-Miin Liu
If traders rely on technical trading systems, they need to know the size of slippage, which is the difference between estimated transaction costs and actual transaction costs. Authors Greer, Brorsen and Liu decided to use the trading record of a technically oriented money manager to determine slippage for the fund's transactions using 11 commodities and stop orders.
Slippage, which is the difference between estimated transaction costs and actual transaction costs with the difference usually composed of a price difference, occurs for stop orders when prices move past the stop price before the order can be filled. Traders relying on technical trading systems need to know the size of slippage and how it varies across commodities when evaluating alternative technical trading systems, but this information, for one reason or another, has not been easily available in the past. So we used the trading record of a managed futures fund to determine slippage for the fund's transactions and thus thus provide previously unavailable information.
A study conducted recently by Wall Street Journal reporter Stanley Angrist discovered that slippage averaged $17 per contract for the 11 commodities covered here. From the results, it appears that slippage for a large technical trader may be higher than for the average trader. These large technical traders are often accused of causing sudden intraday price moves that cannot otherwise be explained. Comparing the slippage we discovered to that found in Angrist's study provides information about whether this fund trades when the market is moving quickly.
If traders rely on technical trading systems, they need to know the size of slippage, which is the difference between estimated transaction costs and actual transaction costs. Authors Greer, Brorsen and Liu decided to use the trading record of a technically oriented money manager to determine slippage for the fund's transactions using 11 commodities and stop orders.
Slippage, which is the difference between estimated transaction costs and actual transaction costs with the difference usually composed of a price difference, occurs for stop orders when prices move past the stop price before the order can be filled. Traders relying on technical trading systems need to know the size of slippage and how it varies across commodities when evaluating alternative technical trading systems, but this information, for one reason or another, has not been easily available in the past. So we used the trading record of a managed futures fund to determine slippage for the fund's transactions and thus thus provide previously unavailable information.
A study conducted recently by Wall Street Journal reporter Stanley Angrist discovered that slippage averaged $17 per contract for the 11 commodities covered here. From the results, it appears that slippage for a large technical trader may be higher than for the average trader. These large technical traders are often accused of causing sudden intraday price moves that cannot otherwise be explained. Comparing the slippage we discovered to that found in Angrist's study provides information about whether this fund trades when the market is moving quickly.
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