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Back in the days of open outcry trading, the futures market was not nearly as efficient as it is today. Online trading has greatly improved the quality and quantity of trading and executing trades.
But there is still one little nagging issue to beware of: slippage.
From Wikipedia:
"With regards to futures contracts as well as other financial instruments, slippage is the difference between estimated transaction costs and the amount actually paid."
There are many other definitions on the internet, some very complex, but I believe the above referenced quotation is simple enough for our purpose. Slippage occurs when you sell or buy at a specified price and your actual execution price is higher or lower than your specified pricel. Even more likely, slippage can occur when you have a stop price specified and the executed stock price is higher or lower than you intended stop.
Slippage can occur for a number of reasons:
1. You are trading in a thinly traded market and there are simply not enough traders to fill orders in a timely manner.
2. Your brokerage software package is not efficient and is unable to execute buy/sell orders on a timely basis.
Whatever the reason, slippage can sap your profits if you don't pay close attention to your execution prices and specified prices.
Very thinly traded markets, say copper, often don't have the liquidity to handle large market orders. If you intend to trade thin markets, you will need to cut down your order size to accommodate the reality of the thin market.
On the other hand, markets that have a high degree of liquidity are excellent for avoiding slippage. For ES contract, for example, is one of the largest futures contracts, and I experienced very little slippage when trading this market. More than a million contracts, some times even higher, are traded daily on this exchange and you will have little trouble getting your trades executed and filled in a timely manner. I have trade up to 100 contracts on the ES and had excellent fills.
Pay close attention to the manner in which your broker's software fills a trade. Sometimes slippage can occur because the firms software is not "up to snuff" in the digital age and cannot keep pace with the fast moving, highly liquid markets like the ES.
For whatever reason, slippage is a real cost in your trading operation and you should do what it takes to make sure you trades are executed and filled at your specified parameters. The failure to do so will result in real costs to your trading account, which is an undesirable outcome.
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