Price Change is a trader’s perception of the difference between the desired or expected price and the actual execution price at which the order materializes.
Price change measures the difference between a trader’s expected price and the transaction price, resulting from changes in the underlying market price.
It is often referred to as “Slippage ” or “Price Improvement” respectively, indicating unfavorable and favorable outcomes respectively.
While attention is often focused on slippage (executing at a lower price than expected) when using market orders, we should expect to experience slippage and improve .
Traders using limit orders may have become accustomed to not expecting either of these scenarios.
They believe limit orders won’t go down, and many traders don’t even think about measuring price improvements.
Price changes can be:
- Symmetry: Both price declines and price increases are passed on to customers without limit.
- Asymmetry: Price improvements passed on to customers are limited, but price declines are not.
Ideally, both market and limit orders should exhibit symmetrical price changes.
Limited Partners may choose to fill every order at the limit price, even if filling of market orders indicates that there should be a better price during certain time periods.
This means that even limit orders should experience price improvement.
The information needed to measure slippage or improvement may only be available in the trader’s own logs.
We cannot rely on orders to carry the price that prompted the trade decision – market orders contain no price at all, and the price on a limit order is not necessarily the same as the decision price.
This makes the metric potentially opaque and highly subjective.
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