Why slippage occurs in programmatic transactions

Why slippage occurs in programmatic transactions

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

• Since the market is always volatile, the market is not the cause of the slippage. While in the historical retrospective and analogue discs, there is no slippage because there is no network latency (but the market is still fluctuating, but there is no slippage), you can set a stop loss on each piece in the analogue discs, and you will find that each coin is triggered or stopped at the price you expect.

• According to the above calculation formula, you can't control the fluctuation of the market, but you can control the delay of the network. Be sure to understand that the market you see on your computer is a replay rather than a live stream, and the program is based on the instructions issued by this market, and the middle time is required to take effect.

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

  • 1 Increase the level of processed transactions

    In the process of programmatic trading, the trading level of the large cycle, whose average gain and loss points are necessarily greater than the small trading level. If a large-level model is an average profit of 50 points, an average loss of 30 points, while the small level is an average profit of 5 points, an average loss of 3 points, in the historical review and the simulation disk, the two do not see much difference, both models can achieve stable profits, but in the disk will be quite different, the former must be more effective than the latter, because the scale of the slippage point, and the number of average gain and loss levels, is not a number.

  • 2 Reduce network latency during processed transactions

    Take all possible measures to find the fastest way to connect to your programmed transaction server to reduce network latency.

  • 3 Avoid specific market volatility times

    For example, I completely avoid non-farmers, clearing all the stocks 15 minutes before the data is published. The volatility of the market, you can't control the speed, but you can't be bothered to hide, non-farmers publish time, accurate to the second, do not hold stocks at this time, the slippage point is bigger, it has no effect on you.

    In summary, 2 and 3 are the two multiples of the calculation formula to reduce or avoid the slippage in programmatic trading, whereas method one does not actually reduce the slippage, but only makes the effect of reducing the slippage effect, so that it does not affect your yield curve. Finally, there are times when the slippage in programmatic trading can also increase your yield, which requires you to understand how you open a single and peaceful position, in a word, if the open position is a reverse tick level trend, the slippage is advantageous to you, if you flatten the tick level trend, the slippage is also advantageous to you, at this point, your network latency is great, it is actually good!

    When you have two or more trading hosts, it is necessary to separate all the orders and positions, if the slider is in your favor, these instructions are left to the slow network host to operate, if the slider is unfavorable to you, then divide these instructions into the fast network host to operate.

How can traders avoid slippage?

Every trader inevitably encounters slippage, whether they are trading in stocks, forex or futures. Slippage refers to a discrepancy in the actual transaction price of the client's expected trading price. Suppose you are trading in a stock and you expect the price of the listing to be $49.37; however, it is possible that your offer may have been delayed due to a change in the trading environment and you end up with a price of $49.40; this $0.03 price difference is your slippage point.

• Order types and sliders

  Slippage is most commonly found in the market price list. The market price list can be used to enter a position or to close a position. Therefore, slippage may occur when entering or leaving the market.

  In order to avoid bidirectional slippage, traders also choose a limit order. This is also the difference between a limit order and a market order. Limit orders can effectively avoid slippage, which is helpful in some cases. Other order types are associated with market orders or limit orders in different trading scenarios.

• Opening of the market

  Limit orders and stop-loss orders are often used to enter a position. Since there are no positions available at this time, you can enter at any time. If you cannot get the expected price, you can not trade. Sometimes limit orders mean missing potential profitable opportunities, but it also allows you to avoid over-investing in the trade.

  Market orders also allow you to trade at any time, but market orders can have slippage points, which can make your transaction price lower than expected.

  Ideally, a trade plan should be made using a limit order or stop loss order to avoid unnecessary slippage when entering. However, some trading strategies involve using a market order to enter a rapidly fluctuating market. In this case, it is best to plan a trade with the slippage in mind.

• Playing the field

  At this point, you are already in the trade, and the funds are closely related to the situation, and you have less control over the factors than before entering the trade. Your profits depend on whether the market is benign. Therefore, traders will usually decide to use a market price or a limit price based on changes in the situation at the time.

  If the trade is more favorable to you, then set a limit order at the target price. Suppose a trader buys at $49.40 and sells at $49.80. Then the limit order guarantees that the transaction will only be completed when it reaches $49.80.

  If the trade is already at a disadvantage, the stop loss order is triggered and becomes a market price order. This allows you to exit the loss-making trade in time. The stop loss order will only be triggered at the price you expected, but if the price becomes more and more unfavorable and you do not enter at the specified price in time, your loss will only continue to increase. In this case, accepting a slippage is better than continuing a loss.

• When is the greatest slide point?

  The biggest slippage usually occurs alongside important risk events. Day traders should avoid trading during periods of major risk events such as Fed interest rate decisions or non-farm data. Severe market fluctuations may seem tempting, but getting the expected price becomes difficult.

  The most unfortunate is the major slippage caused by sudden news or announcements. In fact, if you don't trade during important news events, then most of the time, using stop losses is a good way to avoid slippage problems. However, if you encounter a sudden situation, you can only tearfully watch the losses gradually expand. Such slippage is inevitable.

  Slippage is more likely to occur in markets where the trade-offs are weak and the trade-offs are more likely to amplify market volatility, leading to slippage expansion. The liquidity of stocks, futures and foreign exchange pairs is relatively abundant, which effectively reduces the occurrence of slippage. If the opening hours of trading in London and New York are full, most currency pairs have sufficient liquidity and fewer slippage.

• The ending

  No broker can completely avoid slippage, which is one of the costs of trading; sometimes this is a cost that must be paid, but not always. If possible, use a limit order to exit a profitable trade.

  Some traders do not apply stop loss orders to avoid slippage. In extreme market conditions, you may trade at a bad price, but in this case, the final trade price may be bad regardless of whether you use a stop loss list. Control your risk, do not trade when a major risk event occurs, then you can avoid a major slip.

The above article was taken from the Sina Weibo blog and the WeChat public website: