Skip to content
GetProfitable
Search
Dictionary

Execution quality

How good your fills actually were, measured against defined benchmarks such as the midpoint at arrival, the quote at execution or the interval VWAP.

Slippage on a market orderA buy order clears four price levels, so the average price paid is worse than the price first quoted.Buy 1,000 shares at marketpricesell orders resting (bar length = size)20.04300 shares20.03200 shares20.01200 shares20.00300 sharesnothing resting at 20.02order sweeps up the bookaverage fill 20.02SLIPPAGE0.02 a share$20.00 in totalintended 20.00Each level fills at its own price; the average is what you really paid.
Slippage on a market order. You click at 20.00, but only 300 shares are resting there, so the rest of the order fills at 20.01, 20.03 and 20.04. The average price paid is 20.02, and that two-cent gap is slippage.

Without a benchmark the question is meaningless. The three common ones answer different questions: arrival midpoint measures the whole decision-to-fill cost, quote at execution measures the broker's routing, and interval VWAP measures the algorithm against the market it traded in.

Serious measurement separates costs that are your fault (delay, over-aggression) from those that are structural (spread, impact), because only the first kind is fixable.

Example: decision price 40.00, arrival midpoint 40.02, average fill 40.09, interval VWAP 40.06. Total shortfall is 9 cents: 2 cents of delay before the order was live, 4 cents of underperformance versus VWAP, and 3 cents of spread and impact. On 100,000 shares that is $9,000, of which $6,000 is potentially controllable.

Related: implementation-shortfall, slippage-measurement, effective-spread, market-impact

Educational only, not advice. Spotted an error? Post in Site Feedback.