Liquidity & Slippage

[cd173]

Morning All

A general question...What are people's opinions about the products they trade with regards to liquidity or fills and the amount of slippage they endure.

From what I understand :
The ESMini is very liquid with fast fills not a problem, thus keeping slippage to a minimum?
DAX has good liquidity (though not as good as it used to be maybe?) but slippage is or can be a problem.
Forex Futures, very liquid?

Although, good/bad fills can be down to your broker, just wondered what people's experiences were. Does higher liquidity mean less slippage or does one have no baring on the other?

cd

 

[Strategic Trader]

liquidity is the key element on which slippage is dependent - but must be taken in context of both the trade sizes going through, your own trade size, and market movement which may result in all size being pulled - resulting in slippage regardless of liquidity

 

[cd173]

Strategic Trader

Thanks. Understood.
May I ask what you trade and your experiences of liquidity & slippage??

Cheers
C

 

[roguetrader]

As strategic says, slippage is largely a liquidity issue, although your broker can have input into this, usually you can judge the risks here by volume and spread. I trade US stocksand as a rule do not look at anything with less than 500,000 per day, though in practise given the screensI run I probably never get close to a stock trading at that level

 

[MartinD]

cd173,
do you have access to realtime depth of market data?

if you pull up DOM for the instruments you are interested in you can get a good idea of liquidity in relation to the size you want to trade by just eyeballing the bid/offer size and how it fluctuates as the market moves around.

ES for instance usually has anything from 500-5000 contracts on the inside bid/offer... obviously you can hit this in a normally moving market with market orders in huge size and experience zero slippage.

Other markets like YM, Er2 and currency futures like Euro/USD have much bigger daily range and less relative volume = thinner DOM and therefore more chance of an extra tick slippage if you are trading 20+ cts.

Single lot orders you would almost never get slippage in an active electronic market, unless you are buying into a fast rising market on news or something.

 

[cd173]

roguetrader / MartinD

Thanks for the feedback.

I thought EUR/USD futures were very liquid?

Cheers
C

 

[MartinD]

Its a liquid currency future, but its all relative:

EUR/USD futures trade about 80-100,000 cts a day with a high average range of 110 pips/ticks (based on last 14 days) so say 90,000 cts / 110 ticks range = 818 cts traded per price increment.

ES futures trade a massive 600-900,000 cts a day with an average range of just 10pts = 40 ticks over last 14 days. so 750,000 cts / 40 ticks = 18,750 cts traded per price increment.

So the relative volume in terms of contracts traded per tick of price movement is exponentially less on an instrument like EUR/USD and YM/ER2 where daily price range is high vs contracts traded.

This means that the # of cts available and therefore tradeable per price increment will be less which either limits the size you can trade without slippage, or means you must eat bigger slippage to fill the larger size that you want.

 

[cd173]

Hi MartinD

Thanks for that post. Very informative.
I suppose it's also relative to the actual size of your chosen market.

Many thanks
C