Question on limiting Market Orders to reduce slippage?

Hi guys,

I've been looking for ways to reduce slippage and whilst that is possible with stops with stop limits, is there any way to limit the amount of slippage you would be willing to incur with a market order e.g Buy next bar at Open;? Not sure if this even makes sense ... Thanks!

rgds - Ming

I've been looking for ways to reduce slippage and whilst that is possible with stops with stop limits, is there any way to limit the amount of slippage you would be willing to incur with a market order e.g Buy next bar at Open;? Not sure if this even makes sense ... Thanks!

If you want to reduce slippage with market orders but still use market orders, you can:

- Reduce the time frame of your chart, so that the 'next bar order' is submitted sooner (since the bars will have a lower resolution).

- You can also make a strategy independent from the chart's resolution by using intra-bar order generation. That would allow you to submit the 'next bar order' as soon as the next tick without having to wait on the next bar.

With the above points I assumed you didn't want to make large adjustments to your strategy and trading approach. If you are open to make some larger changes, you can:

- Trade more liquid, less volatile instruments. That would reduce the odds of a price movement between the time you submit the order and when it fills.

- Change the strategy so that it trades on a higher time frame, with a swing trading approach instead of a day trading approach. While you will still incur slippage with swing trading, the slippage costs will be a relatively small portion of the trades' profits and losses (compared to short-term, intra-day trading).

There might be more things you can try; the above ones were on the top of my head.

First of all, do not use <STOP LIMIT> orders to reduce slippage except your strategy depends on this <STOP LIMIT PRICE> as an entry, not as an exit. It just increases your execution risk by factor X.

Today, I do not know any trade matching machine algorithm which doesn't work with price - time priority (FIFO) for <STOP MARKET> & <STOP LIMIT> orders. This means time is the biggest factor, as price of execution is predictable, time stamp is not. As a non-pro or retailer at all, you won't know where your order is placed time stamp wise in a row of stop orders on one particular price.

There are many ways to increase order efficiency out of your setup of your order strategy in Multicharts. Just be aware to fix everything in your setup which is highly time stamp sensitive just right from your environmental setup. Data feed, location, network hardware at home etc.

Further think about your studies,strategies which generates signals. Is your order placement predictable (price) right from your algorithm before any <STOP LIMIT> as entry or <STOP MARKET> order has to be set? Are you able, margin & risk wise, to set blind orders for high price-time-priority efficiency ? Is it preferable to split order generation in different algorithms, because of specific order execution procedures in Multicharts.

But all these are questions are for you to answer first, before anyone can give you a sophisticated advise. With a correct setup and some serious efforts, you would be able to increase order efficiency
by 100 to 250+ms as a retailer from the original current tick generated on the exchange, tick delivery by data/price feed, order generation locally, order delivery to the exchange through the broker, order confirmation etc etc .

If you can't afford to change your environmental setup, start to work with your algorithm to predict where a signal would be generated and to set orders following this approach. I mean constant predicting of your next trade signal, generating orders, deleting orders etc. All tick by tick and through separating of entry and exit signals . This makes the biggest advantage to start with.

But the biggest advantage would be Multicharts re-thinking it's signal generation, order delivery and check in their platform with brokers etc.

Kind Regards.

Ben

Thanks guys,

Many points to ponder upon and rethink the design of my setup and strategies. I'm currently just moved my strats from TWS to gateway and maybe it's just me but it does seem a little faster but will need some time to monitor.

Strategy wise, lots of good ideas I would need to rethink my bar resolutions for market orders and perhaps see if the price was calculable beforehand and set it as a stop instead of a market order. I frankly was quite surprised at the slippage I was getting from very liquid markets such as gold which was way off my initial slippage assumptions.

Ben - 'because of specific order execution procedures in Multicharts.' Would you be able to explain this more in detail or point me where I could read up a little more on this. Thanks again.

You can use marketable Limit-orders instead of market orders. For example, current bid/ask is 95/96 and you want to buy, enter a buy Limit immediate-or-cancel (IOC) at 98. This would fill you immediately if you get a Price of 98 or below. If there would be slippage beyond 98 the order would be cancelled.

@AlphaCat

Regarding my post in Feb 2016 and the following discussion I do not see any chance to enter an IOC order manually above/below the current market easily without any further time consuming steps.

Further I would like to ask how to set an IOC order via PowerLanguage in Multicharts and why you would prefer an IOC order above a normal Limit order to buy at 98 when the thread opener has issues with slippage and not with tactical order management.

Kind Regards.

Ben