Our strategies, indicators and Safeguard 1st Risk Model account for transaction costs in their algorithms.
Slippage refers to the difference between the expected price of a trade and the price at which the trade is actually executed. Slippage often occurs during periods of higher volatility, when market orders are used, and also when large orders are executed when there may not be enough interest at the desired price level to maintain the expected price of trade.
Our slippage estimates are based data obtained by Groot, Huij, and Zhou in a paper they authored on trading costs and reversal strategies. The data was provided by Nomura Securities, one of the world’s largest stock brokers. (See Table 2, page 49 for data).
The estimates below apply to each side of the trade (single-trip) – on entry and then again on exit:
Safeguard 1st Strategy (SPY ETF): 5 basis points (0.05%)
Large Cap Momentum Strategy: 5 basis points (0.05%)
Small Cap Momentum Strategy: 70 basis points (0.70%)
High Turn Momentum Strategy: 70 basis points (0.70%)
Safeguard 1st Risk Model: 22 basis points (0.22%)
Indicators: 22 basis points (0.22%)
Note: The slippage estimate for indicators is large to account for any delays in trading that might occur between generation of a buy/sell signal and the execution of the trade.
Trade commissions for our strategies, indicators and Safeguard 1st Risk Model were/are estimated to be between $8.00 and $10.00 per trade. Current brokerage commission rates are lower, at around $5.00 per trade.