Market Order Definition
Here’s the scoop straight from the SEC on market orders.
Extra Insight:
Backtesting with end-of-day data differs from live trading with respect to market orders. No way can an order in backtesting move the market — it is assumed to execute at the historical price. One way to account for this discrepency is to specify a slippage assumption that the backtesting engine applies to each trade.
Another approach is to reduce slippage by trading in liquid markets — I look for a volume of 500,000 shares to trade.
A small private trader is unlikely to move a large liquid market. By sticking to high volume stocks, its not only possible to backtest market orders, its also possible to understand more about the differences between market orders and limit orders via backtesting.
Updated: 11/13/08.
October 23rd, 2008 Filed under GlossaryTags: backtesting, data, market order, slippage, trading
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