Firms defined execution quality and slippage based on their trading outlook
By Steve Woodyatt, chief executive officer of Object
increasingly being forced to find and fund their own market
access technology solutions. There is however, a valuable
silver lining to this extra effort. In taking the opportunity
to build a single, normalised market access infrastructure,
they gain the benefit of substantial increases in control over
their business models, by managing execution quality and
slippage, mitigating the effects of liquidity fragmentation,
and responding quickly to volatility extremes.
Managing Execution Quality (Slippage)
Firms participating in our research defined execution quality
and slippage differently based on their trading outlook. Firms
using latency-sensitive arbitrage strategies tend to need to be
first to a book, whereas firms with long-term or large
positions are most concerned with the equity curve impact of
slippage. For example, if a firm pays for immediacy (crossing
the spread), they will pay a few extra ticks. This may not seem
like much on an individual basis, but when you scale it up for
size, the cost of slippage becomes much more profound. A
position-taking firm trading size can lose more in slippage in
one position than most proprietary traders can gain or lose in
their entire P&L.
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