How to effectively avoid slippage

How to effectively avoid slippage

• ### The slider

First, let's talk about the slippage points in programmatic trading. In fact, the slippage point in programmatic trading is the difference between the actual transaction price and your expected price.

From this we can give a formula for calculating the slippage point: network latency time * market tick level fluctuation rate = slippage point.

It is not the case that the market is always volatile, and in the analogue and historical retrospective, there is no slippage because there is no delay in the network (but the market is still volatile at this time, but does not produce slippage), in the analogue, if you set a stop loss margin for each single piece, it is not difficult to find that the stop loss or stop loss triggered in each trade is 100% at the price you expect.

Firstly, the market fluctuations, which we cannot change, but we can control the network delay time. We must be clear that the market we see on the computer, not live but replay, according to this market the instructions we program, but also the time needed to pass to take effect.

• To avoid the effects of slippage, there are three ways to do this:

  • ##### 1 Increase the level of programmatic transactions What do you mean? In the process of programmatic trading, the average gain and loss points of the large-cycle trading level are necessarily greater than those of the small-cycle trading level. If a small-level is an average profit of 10 points, an average loss of 7 points, while the large-level model is an average profit of 100 points, an average loss of 70 points, in the simulation and historical review, there is little difference between the two, both models can be stable profitability, but in the real world, it will be very different, the latter must be very different from the former, because the average gain and loss number, and the scale of slippage, is not a scale at all.
  • #####2 Reducing network latency is very helpful for programmatic transactions

  In addition, the company is trying its best to find the fastest way to connect to a programmatic transaction server to reduce network latency.

  • #####3 Avoid periods of high market volatility What do you mean? For example, for non-farmers, you can take a complete avoidance approach, all the time of clearing the stock is kept 15 minutes before the data is published. You can not change the volatility of the market, but you want to avoid it is good to do, for accurate to the second non-farm publication time, this time we do not hold stock, even if the slippage point, it does not affect us at all.

  Based on the above, adjusting the two multiples of the formula to reduce or avoid slippage in programmatic trading is the second and third point, while the first point, just to reduce the effect of slippage instead of reducing the slippage, our yield curve rate is not affected at all. Slippage in programmatic trading can sometimes increase your earnings, which requires our team to have a better understanding of how to open and hold positions, in short, if we use the reverse tick level opening method, that point is advantageous for us, if we use the smoothness of the tick level trend, slippage is also advantageous for us, at this point, a larger network delay is a good thing for us!

  When we have two or more trading hosts, we need to separate all the order and peace positions, if the slider is in our favor, we use the slow network host to operate these instructions, if the slider is unfavorable to us, we break these instructions into fast network hosts to operate them.

  Feiyang EA is unilateral, the backtracking method reaches more than 60%, so it is better to use the domestic slow network host to open the order, and for the flat side, the slider is unfavorable for programmatic trading, so it is currently managed by the US Fast Network VPS. These improvements make the historical backtracking less than the performance of the real disk, thus ensuring that the height of the real disk and backtracking is consistent, which is the most important premise in programmatic trading, otherwise it is simply impossible to compile and optimize the trading model.

Translated from Programmatic trading and quantitative investing