Slippage is a reality for any trader, whether they are seasoned or starting out. Yet while it’s not something you can get away from completely, knowing how it works can help you minimise its impact on your portfolio and reduce your costs.
We have worked in the financial industry for decades, and these are the five things we believe every trader should know about slippage in finance.
In order to mitigate your slippage costs, you’ll first need to understand what this term actually means and when it affects you. In essence, slippage refers to the difference between how much you were planning on selling or buying an asset for, and how much you actually pay for it.
As a concrete example, let’s take an Alphabet Inc Class A stock. From the time we started writing this sentence to the time we finished, the price for this same stock on the international market went from $108.34 down to $108.26.
Had we decided to buy it at the original price, we would have been positively surprised to discover that we paid 8c less per Alphabet stock. This is referred to as ‘positive slippage’, as we spent less than we were planning to. Of course, we’re not always that lucky, and sometimes the price may increase, leading to negative slippage.
This is also something we must keep in mind when selling.
Slippage in Trading – How It Works
Slippage in finance happens because markets can be highly volatile, leading to unexpected changes in the bid/ask price – sometimes changing over a matter of seconds. This is made worse by the fact that, today, most trades happen electronically over the internet, leading to even faster changes.
Because most investment managers are not just buying one stock from one publicly listed company, but rather selling and buying numerous stocks and assets (including currencies) all at one go, it is easy to see how you could end up missing the fact that you paid more or less than you intended to.
How to Avoid Slippage in Trading
One of the best ways to avoid slippage in finance is to conduct what is called a slippage and liquidity analysis. This basically tells you whether you incurred any slippage costs, how much those costs were, and what factors led to them happening, giving you a better idea of how different market forces affect different assets in your portfolio.
Conducting a slippage analysis could save you money, but the reality is that it’s a tough process to conduct manually and, most software that promises to reduce your slippage trading, falls short of its promises.
This is indeed why most investment managers don’t bother with slippage analyses, but what if we told you that there is software out there that can conduct the whole process for you quickly, easily, autonomously, and accurately?
Using Our Software to Reduce Slippage Costs
We are a company that focuses on creating software specifically for small-to-medium trading companies. Companies which may not have the budgets and resources of larger corporations, but which are looking to maximise their potential.
To make conducting a slippage in finance analysis a total breeze, we unite three of our signature software:
- CYBMIND measures your slippage costs in real-time, alerting you to any changes before you’re too out of pocket.
- ONESTAT collects and normalises your data into a central database that it then uses to create reports based on your needs and plans.
- NEXTVIEW uses that data and the real-time factors affecting your trading to adjust your strategy in real-time.
All this can be done automatically, allowing you to focus on the strategy – yet you’ll still be kept in the loop throughout the process. In other words, it’s a win-win situation.
So, what are you waiting for? Get in touch with us to discover how we could help you. And, believe us, the price tag is not as much as you’d think it would be!