How To Minimize Slippage and Commissions

Last Updated on November 17, 2020 by

Lately I have done some research trying to develop some new daytrading strategies. I have tested all these strategies with entry on the open (OPG). Exit have been after two hours or on the close (MOC).

There are two huge advantages using OPG and MOC compared to exiting trying to get good offers and bids in the middle of the trading day: what you see is what you get, and commissions are lower (this relates to NYSE stocks only)

  1. There will be no slippage unless your orders move the market, and that is unlikely unless trading many thousand shares or illiquid stocks. And if you move the market, it won’t be much. You will get the opening print and the last print of the day on NYSE. My average slippage is around 0.5 cent per share one hour into the trading day. If I have in total 10 000 shares in open positions, it will cost me 50 USD to exit the positions in slippage. This adds up over a year!
  2. Commission rates will be lower because I remove a lot of liquidity when exiting for example one hour into the trading day. In 2012 my total commission rate is .0028 per share traded. Trading solely with MOC instead I save 0.001 per share traded compared to exiting after one hour of trading. Over many years that is a substantial amount of money.

If trading 10 000 shares one way per day on average, this equals 60 USD per day in savings. And 10 000 shares is not much at all. Most daytraders trade a lot more than that.

This is something to think about if you’re daytrading.