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Slippage And The Choice Of Market Or Limit Orders In Futures Trading

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  • Scott Brown
  • Timothy Koch
  • Eric Powers

Abstract

Retail futures traders face uncertainty regarding the price they will obtain when trading. This price “surprise,” known as slippage, can be substantial. Using unique data from an introducing brokerage for Chicago Board of Trade (CBOT) wheat, corn, and soybean futures contracts, we quantify time‐to‐clear and the magnitude of slippage. We then identify factors that affect these trade quality measures. Finally, we analyze individual trader choice between market and limit orders and find that the likelihood of placing limit orders, where regulations protect traders from slippage, is greater when order and market characteristic indicate that adverse slippage is likely.

Suggested Citation

  • Scott Brown & Timothy Koch & Eric Powers, 2009. "Slippage And The Choice Of Market Or Limit Orders In Futures Trading," Journal of Financial Research, Southern Finance Association;Southwestern Finance Association, vol. 32(3), pages 309-335, September.
    • Handle: RePEc:bla:jfnres:v:32:y:2009:i:3:p:309-335
    DOI: 10.1111/j.1475-6803.2009.01252.x
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