Slippage and Commission: The Hidden Costs
What if your algorithmic trading strategy could execute trades perfectly while you slept—but then lost 2% of its potential profit to hidden costs before...
What if your algorithmic trading strategy could execute trades perfectly while you slept—but then lost 2% of its potential profit to hidden costs before the market opened? You're not alone. Over 97% of market-open orders get filled at quoted prices, but even small slippage differences compound into significant losses over time, especially for active traders. In this guide, you'll learn how to identify, measure, and minimize these hidden costs without sacrificing your strategy's edge. Slippage is the difference between the price you expect to pay (or receive) for a trade and the price you actually get. This happens because markets move quickly, and the price may change before your trade is fully executed. It's a common hurdle in algorithmic trading that can turn profitable strategies into losing ones if not properly managed. Commission is the fee charged by brokers for executing trades, typically calculated as a flat rate or per-share amount. While visible on your statement, it's often overlooked compared to the more insidious impact of slippage. Execution Cost is the total cost of trading, including both explicit commissions and implicit costs like slippage and bid-ask spreads.