Executing with impact: why the price you want is not the price you get!

CFM has been trading in the world’s most developed financial markets since 1991 and, since 2002, has been using in-house developed algorithms to execute through brokers and exchanges, interacting directly with electronic order books. The firm has, in this time, dedicated significant resources to understanding the microstructure of markets, publishing extensively on the subjects of slippage and, in particular, market impact. In this short note we share some of our insight and experience with references to our experimental data in order to explain the origin of trading cost, moving from bid-offer spreads to the ideas of price impact before describing a recipe for modelling these costs in simulation.