Front-load futures commission and slippage

Cost assumptions come before parameters

Conservative frictional-cost assumptions should be loaded onto a mechanical futures procedure before parameter selection. Those assumptions affect both viability screening and which parameters look optimal.

Frictional cost is the commission, fees, and slippage that a futures fill adds on top of a frictionless theoretical price. Implementation cost is the combined frictional burden used to test whether a mechanical entry, exit, or abstention remains executable.

Fix an all-in commission

A realistic all-inclusive futures commission, commonly cited in the $10 to $20 range per full round turn, should be fixed before modeling. That all-in commission is often negotiated to include association or exchange-for-physical fees.

Retail and startup desks typically pay more than firms with multi-broker access and give-up arrangements. The negotiated round-turn rate should stay locked so later parameter search cannot lean on a cheaper desk than the procedure would actually use.

Record slippage by market and order type

Slippage is the gap between a rule-generated order price and the price levels at which the order is actually filled. When historical fills exist, it should be recorded by market, procedure, and order type.

Order-type slippage is fill deterioration that changes with whether the order is a profit limit, stop exit, stop entry, market on open, market on close, or rollover. Modeled slippage depends on order size, order type, trading frequency, time of day, the contract, the broker, and liquidity.

A blanket friction number is weaker

A single blanket frictional-cost number is less realistic than market-specific slippage by order type. Stop entries and stop exits typically incur more slippage per contract than market-on-open or market-on-close orders.

For coffee orders of about 50 to 75 lots, a stop-exit fill was associated with roughly $200 of slippage per round turn, versus about $45 for a profit-target limit exit at the same size.

Friction assumptions change the modeled path

A $30 per-contract change in combined slippage and commission can reshape the profit-and-loss path of a high-frequency procedure.

On a Brent crude stop-based procedure trading about 1.5 times per month, a $60 round-turn friction assumption produced a flatter modeled equity path with longer sideways stretches and extended drawdowns than a $30 assumption over the same trade sequence, including a 70-trade comparison window.

Session liquidity windows

In the S&P 500 pit session, trade density clustered in the 45-minute intervals around the open and close, so stop entries or exits filled in thinner mid-session periods were expected to accumulate more slippage over time. A session liquidity window is a high-density period around the open or close, contrasted with thinner mid-session intervals where stop penetrations often fill worse.

A mechanical procedure can be restricted to open or close execution to stay in denser liquidity, but adding intradayerisk controls such as trailing stops reintroduces a tradeoff between slower reaction and higher frictional cost.

What reaches parameter tests

A conservative cost burden applies intentionally high commission and slippage assumptions before parameter search so optimistic fills cannot select the rules. After that burden is locked, each remaining entry, exit, or abstention is tested only if it still remains executable under the same implementation cost.