Slippage occurs when you put in your market order to buy or sell, and your order gets filled at a different price that the quote at that moment - higher if you're buying and lower if you're selling. A high degree of slippage can take place when you throw a market order to buy a stock that's "running" or rocketing up in price.
Slippage also chews into your profits when you place a market order to buy a "thinly traded" stock, which means a stock that trades on low volume (less than 10,000 to 300,000 shares per day). The market maker will see your lone order to buy at the market floating in, and he or she will "adjust" the price a bit to suit his or her needs. He or she will drool a little, then raise the price a fraction of a point, and fill your order.
The cure for slippage is to issue limit orders (your order will be filled at a specified price or not at all), or place your orders through a direct-access broker on a Level II order-entry screen.
No comments:
Post a Comment