Hi. I have launched several R2G’s using major ETF’s. One just trades the SPY and SH. I am currently using 0.2% fixed slippage (from close or avg. of hi low) per your instruction. However, in my actual trading so far I am losing $.01/trade on both instruments.
That works out to 0.04% slippage. This works out to a difference in ‘real performance’ of 6% AR on my higher turn long/short model. It also affects how I structure sell rules. I am comfortable that people will not lose more than $.01 to $.02 on average after the open.
I also am aware that some of the earlier launched microcap R2G’s are using 0.15% slippage on microcaps. I would just like to revisit this. I am all for being conservative, but I also want to be accurate. I don’t think 0.2% slippage on SPY and SH is accurate.
Same goes for things like QQQ, EEM, etc.
So…Let me know if I can use a lower number and detail a variety of slippage ranges and result outcomes in the attachments. I have no idea if the system will work going forward, but I’d at least like reported performance to be close to realized.
Yes, I agree with Tom. All you have to do is to look at the Bid_Ask spread, it is minute for those ETFs. A slippage of 0.05% would be a conservative assumption.
Georg
So I believe that one problem is use of next (Hi+Lo)/2. For higher liquidity stocks this is simply not right. The next open should be used to get a more accurate representation of what should be expected. This applies to ETFs as well as stocks.
For less liquid stocks, I also wonder how accurate (Hi+Lo)/2 really is. In the past, I have seen some sites that use a more conservative Next Hi for buys and Next Lo for sells.
For middle liquidity, there should be a blend of the two methods, whatever they may be.
I don’t believe there is a point to analyzing percent slippage until this other major issue is addressed.
There were apparently some issues with ‘next open’ prices being ‘outliers’ on SH on a few days in 2008. Leading to big gains that would have been hard to achieve in trading. This is why marco suggested no R2G’s be allowed to use next open. Geov has suggested next close. I am fine using whatever the community wants…the sim results are better at next open and about the same at avg hi-low or next close.
A alternative solution for very liquid ETF's is to offer the "next open". I understand that this would require you to "fix" pre-2004 open prices, but this is something that I think you really do anyway.