Liquidity, share count, and stop-trigger costs

The fill path belongs in the rule

The editorial position is that a rule-based-entry and its stop-loss stay unfinished until the fill path is specified. Before the order is armed, the name still has to pass a liquidity-screen, the share count implied by a fixed cash-risk stop still has to be known, and the trigger-method that may convert a resting stop into a market order still has to be chosen.

Slippage is defined as the difference between the filled price and the intended price. Complete removal of that gap is treated as unavailable. Procedures that require a sure fill are described as using market or stop-market-order instructions, while reversal-style setups are described as able to wait for limit fills.

Any rule-based procedure that is not limit-order only is described as remaining exposed to slippage. Simulated entries are described as able to deteriorate once live fills replace assumed prices.

Screen the book before the name is traded

The archive presents larger displayed volume and a period of Level 2 bid-ask observation as a pre-trade liquidity-screen, applied before a name is traded or added to a book. The bid-ask-spread at that moment is part of the observation.

Share count at a fixed cash risk

With cash risk held at 8000, an 8 price with a one-cent spread required 1000 shares and produced 10 of dollar slippage. A 400 price with a 20-cent spread required 20 shares and produced 4 of dollar slippage.

Those two cases are the archive illustration of share-count-slippage: dollar fill deviation that grows with the number of shares required to keep cash risk constant. The editorial reading is that the share count implied by the stop at that price has to be known before the order is armed, because implementation-cost is not the same thing as the printed bid-ask-spread.

Routing is a fill-quality choice

Broker routing across exchanges and electronic networks is framed as a fill-speed and fill-quality choice, separate from charting features, when the same live stop-market-order instructions are compared.

A same-time live pairing of 500 stop-market-order tickets on 10 names recorded average slippage of 7.18 percent of planned risk on one platform and 6.55 percent of planned risk on the other.

Choose the trigger before the stop is armed

A sell-stop is described as arming when the bid is at or through the stop. A buy-stop is described as arming when the ask is at or through the stop. After that trigger, the working order becomes a market order.

Five trigger-method rules were live-tested with 200 orders each. Average slippage as a percent of planned risk was recorded as 8 for bid-ask, 7 for last, 9.1 for double bid-ask, 6.5 for double-last-trigger, and 11 for midpoint, a 4.5 percentage-point span from best to worst in that sample.

The double-last-trigger arms only after two consecutive last prices through the stop, or after one last print through the stop together with an increase in last size. The editorial instruction is to choose the allowed quote condition before the stop-market-order is armed.