Slippage or Skid Definition
When using a market order, the price is not agreed in advance. An order, even a small one but especially large ones, might move the market and be executed at a surprising price! The difference between the price quote and the price paid is known as Slippage in the stock trading world and skid among commodity traders. Most backtesting engines allow the user to make an assumption of how much slippage effects each trade.
Extra Insight:
For my backtesting, I assumed zero slippage. This is not realistic for market orders but is realistic for limit orders.
Using limit orders in live trading is one way to reduce the cost of slippage. Trading less frequently is another.
(Backtesting Blog is an Amazon Associate
Updated 11/13/08.
October 14th, 2008 Filed under GlossaryTags: backtesting, limit order, market order, skid, slippage, trading
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