Max Slippage

November 4, 2009

Excellent article on execution slippage from Max Dama here. He’s writing from a prop trading perspective. Nice diagrams and charts in the piece as Max breaks slippage down into two components: liquidity impact and alpha loss. If we look at the problem from a Euro rates market making perspective we would consider slippage for hedge order execution on Eurex. We’d still have the liqudity impact component Max describes. Instead of alpha loss we’d have market risk for the time we carry an unhedged position. Of course, it’s a matter of market maker discretion how much risk to carry and for how long…

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