Financial-edu.com:  Your Financial Knowledge Source Buffett 468x60
 
Investing & Trading more >
Forex
Futures & Options
IRA + 401k
Online Services
Quotes & Data
Guides & Courses more >
Excel & VBA
Finance & Economics
Trading & Investing
Tools & Models more >
Calculators
Forms & Templates
Graphing & Charting Tools
Risk & Portfolio Models
Trading Models
Business more >
Accounting & Finance
Asset Management
Calculators & Converters
Consulting & Strategy
CRM & Sales
Software more >
Business and Finance
Home & Education
Internet
Investing & Trading Software
PDA & Mobile
E-Books more >
Finance Ebooks
Real Estate Ebooks
Trading & Investing Ebooks
Credit & Borrowing more >
Security & Privacy more >
Anti-Spam & Anti-Spy Tools
Anti-Virus Tools
Covert Surveillance
Encryption Tools
Password Managers
 
  Print this page      
 

Slippage

Author: Financial-edu.com

Slippage refers to the difference between the stated price and actual price at which an asset is transacted.  Price slippage is used primarily in the securities markets, where it refers to the difference between a price seen or quoted on the screen and the actual price that a buyer or seller receives in a transaction. 

Slippage can be minimal or substantial, depending on various factors.  These include:

Liquidity and Depth of the Market
A market that transacts infrequently will have very high slippage costs.  A highly liquid market with many buyers and sellers at nearby levels to the current quoted price will have low slippage.

Time of the Transaction
A transaction which is executed overnight, on a weekend, holiday, near a contract rollover period, or at the market open or close will tend to have high slippage costs.  Market liquidity and depth changes over time, making transaction timing important.

Order Size
Huge institutional orders from mutual funds, hedge funds, investment banks, pension funds, and governments can suffer from extreme slippage costs.  These orders are often sent through order-routing technologies (either across different execution platforms or different execution times) to minimize market impact.  The typical small retail order will have very small (or no) slippage in liquid markets.

Speed of Market Action
In fast-moving volatile markets slippage is higher than when the market is more predictable with buyers and sellers congregated around the same level.  This is why slippage is high at the market open and close when volatility is highest.

Latency Between Order Send, Receipt and Execution
All orders take some time between the moment they are sent by a buyer or seller and the moment they are recorded in an execution system.  Although today's Internet-based transaction systems are ultra-fast, there is still a time lag between when the buy or sell button is clicked and when the transaction is completed.  Prior to today's all-electronic markets this was a major issue as orders were transacted verbally, by fax and telephone, and (before that) letters, messenger and private wire.  Latency is also a minor issue in the quotation systems themselves, as it takes a small amount of time to post the latest bid-ask prices (even if the system is "real time").
 
 
 


SHARE THIS ARTICLE: Digg this del.icio.us Netscape reddit Fark Slashdot
     
   
   
 
 
 
 
Professional Trader Education Value Pack for Emini Traders Value Line - Warren Buffet Calls it An Incredible Value! Professional Trader Series DVD Set
 
Home | Guides + Courses | Books + Videos | E-Books | Tools + Models | Articles Library | Submit Article | Site map
Copyright 2006-07 Financial-edu.com. All rights reserved.