Trade Execution Modeling

Overview

Provide more realistic execution assumptions for backtests, including slippage models, market-impact estimation, and execution-algorithm principles. This skill is for backtest simulation only and does not involve live order execution.

Slippage Models

Why Slippage Models Are Needed

Idealized backtest: filled at the close, zero slippage
Real world:
1. The order book has a bid-ask spread
2. Large orders push prices (market impact)
3. Execution is delayed (there is latency from signal to fill)

No slippage model -> overly optimistic backtest -> losses in live trading