Slippage Ratio is a quantitative metric that expresses the difference between the expected price of a trade and the actual executed price, relative to the expected price. Its purpose is to measure the efficiency and cost of trade execution, particularly in volatile or illiquid crypto markets. A lower ratio indicates better execution quality.
Mechanism
This ratio is calculated by taking the absolute difference between the requested price and the filled price, then dividing that by the requested price. It accounts for price movements that occur between order submission and execution. Positive slippage occurs when the executed price is worse than expected, while negative slippage indicates a better-than-expected price.
Methodology
The strategic analysis of the slippage ratio aids in evaluating algorithmic execution performance, selecting optimal liquidity venues, and refining order sizing. Traders use this metric to understand the real cost of market access and to optimize their strategies for minimizing adverse price movements. This methodology supports a data-driven approach to improving overall trade execution outcomes.
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