Price Variation

Price variation represents a trader’s perspective on the discrepancy between an anticipated or desired price and the actual execution price obtained from an order.

This metric assesses the difference between the expected price and the price at which the order was filled, which can result from fluctuations in the underlying market prices.

It is commonly referred to as “slippage” when the outcome is unfavorable and “price improvement” when the outcome is favorable.

While there is often a focus on slippage (execution at a price worse than expected) when utilizing market orders, it is important to recognize that both slippage and improvement can occur.

Traders employing limit orders may have been led to believe that neither scenario is possible.

They often assume that limit orders cannot experience slippage, and many traders do not even consider the possibility of measuring price improvement.

Price variation can be categorized as:

• Symmetrical: Both price slippage and price improvement are passed to the customer without limitations.
• Asymmetrical: Price improvement is limited for the customer, while price slippage is not.

Ideally, symmetrical price variation should be evident in both market and limit orders.

Liquidity providers (LPs) may opt to fill every order at its limit price, even though market order fills suggest that a better price should be accessible for a portion of the time.

This indicates that even limit orders should also benefit from price improvement.

To measure slippage or improvement, information may only be accessible in the trader’s own logs.

We cannot depend on orders to reflect the price that influenced the trading decision—market orders do not carry a price at all, and the price on a limit order may not necessarily align with the decision price.

This renders this metric potentially both unclear and highly subjective.