Quant investing: Transaction Cost and Slippage Analysis
Transaction cost and slippage analysis are important aspects of evaluating the performance of a trading strategy.
Transaction costs refer to the fees and expenses associated with buying or selling an asset, such as brokerage fees, exchange fees, and bid-ask spreads. These costs can have a significant impact on the overall profitability of a trading strategy.
Slippage refers to the difference between the expected price of a trade and the actual price at which the trade is executed. This can occur due to a variety of factors, such as market volatility, lack of liquidity, or a large trade size. Slippage can also have a significant impact on the overall profitability of a trading strategy, especially when a strategy involves a high frequency of trades or large trade sizes.
Transaction cost and slippage analysis involve estimating and quantifying the costs and potential impact of these factors on a trading strategy. This can be done by analysing historical trade data, using simulation models, or by consulting with market experts.
The results of transaction cost and slippage analysis can then be used to make adjustments to the trading strategy, such as adjusting the trade size, adjusting the trading frequency, or choosing different trading venues. Additionally, the results can be used to estimate the profitability of the strategy and compare it to other strategies.
For example, if you originally test a strategy with the assumption that slippage and transaction costs will be 0.1% per trade, however after initial cost analysis, these costs actually end up being higher than that, then during your strategy testing and development, you can adjust your transaction and slippage cost to be 0.2%. By doing this, it will provide you with a realistic and more accurate back test result.
In summary, transaction cost and slippage analysis are important aspects of evaluating the performance of a trading strategy. They involve estimating and quantifying the costs and potential impact of transaction costs and slippage on a trading strategy. The results can be used to make adjustments to the trading strategy and estimate the profitability of the strategy.
Never miss an update
Enjoy this wire? Hit the ‘like’ button to let us know.
Stay up to date with my current content by
following me below and you’ll be notified every time I post a wire
Hue Frame is the founder of Frame Funds Management. Frame Funds is a quantitative funds management company, that manages assets for institutional and wholesale clients, and proprietary funds.
........
This information is prepared by Frame Funds Management Pty Ltd (ACN 608 862 442) (Frame Funds, we or us) is a Corporate Authorised Representative (CAR No. 123 9068) of Primary Securities Limited (ACN 089 812 812 635) and is intended only for "wholesale clients" within the meaning of sections 761G and 761GA of the Corporations Act 2001 (Cth). This material is not intended to constitute advertising or advice (including legal, tax or investment advice) of any kind. These materials are not to be distributed to any person who does not qualify as a wholesale client and must not be copied, reproduced, published, disclosed or passed to any other person at any time without the prior written consent of Frame Funds. Primary Securities Ltd (ACN 089 812 635 635, AFSL 224 107) is the Trustee of, and issuer of units in, the Frame Futures Fund and the Frame Long Short Australian Equity Fund (Funds). In deciding whether to acquire, or to continue to hold, units in the Fund please read the current Information Memorandum available from Frame Funds. Past performance of the Funds is not a reliable indicator of future performance. The value of an investment in the Funds may rise or fall. Returns are not guaranteed by any person. Total returns are calculated before tax and after ongoing management costs. In preparing this information, we have not considered your investment objectives, financial situation or personal circumstances and therefore the Funds may not be suitable for you. Neither Frame Funds, Primary Securities Ltd, nor any of their respective related parties, directors or employees, make any representation or warranty as to the accuracy, completeness, reasonableness or reliability of the information contained in this publication or accept liability or responsibility for any losses, whether direct, indirect or consequential, relating to, or arising from, the use or reliance on any part of this material. Any rates of return, forecasts or estimates contained in this publication are not guaranteed. The content of this publication is current as at the date of its publication and is subject to change at any time. It does not reflect any events or changes in circumstances occurring after the date of publication.
5 topics
Hue Frame is the founder of Frame Funds Management. Frame Funds is a quantitative funds management company, that manages assets for institutional and wholesale clients, and proprietary funds.
Expertise
Hue Frame is the founder of Frame Funds Management. Frame Funds is a quantitative funds management company, that manages assets for institutional and wholesale clients, and proprietary funds.
Expertise
Comments
Comments
Sign In or Join Free to comment
most popular
Equities
The 7 zombie companies lurking on the ASX 300
Livewire Markets
Education
Warren Buffett’s 25 biggest mistakes – and 4 lessons they teach
Leithner & Company Ltd