The world’s financial markets can be volatile places, particularly since the rise of electronic trading. In fact, as more investors buy securities through digital means, the chances of slippage have increased.
There are many factors that can increase or reduce your slippage costs, but none are more crucial than timing. Indeed, in today’s fast-paced market, the bid and ask prices of shares and securities can increase or decrease in a matter of seconds.
Nevertheless, slippage costs tend to be of just a few cents per share or security, so unlike trade commissions, which you can easily identify in your statements, slippage costs can go unnoticed...
But it pays to stay on top of them as even an average of 0.05% negative slippage per day over 252 days adds an 11.8% compound cost to your expenses, meaning that your annual profit could all but disappear due to it.
The thing about slippage costs is that they can’t always be avoided... but they can be managed! In fact, through slippage analyses, companies can keep tabs on the slippage costs they’ve incurred and generate statistical evidence on when it’s worth limiting orders.
This is why we invite you to check our next article to discover how conducting a slippage analysis could help you build a stronger portfolio.