The slippage paradox

Details The slippage paradox The slippage paradox

2011-03-11

arxiv.org/abs/1103.2214v1

Economy

Quantitative Finance

Trading and Market Microstructure

Scientific paper

Buying or selling assets leads to transaction costs for the investor. On one hand, it is well know to all market practionaires that the transaction costs are positive on average and present therefore systematic loss. On the other hand, for every trade, there is a buy side and a sell side, the total amount of asset and the total amount of cash is conserved. I show, that the apparently paradoxical observation of systematic loss of all participants is intrinsic to the trading process since it corresponds to a correlation of outstanding orders and price changes.

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