The authors thank Scott Barrie for his invaluable assistance in acquiring the brokerage data as well as providing guidance on operations from the perspective of a floor broker, floor trader, and introducing brokerage compliance officer. In addition, we thank Steve Dicke at the Chicago Board of Trade for the time and sales data required for this study. Finally, we thank Esubio Diaz, Helen Doerpinghaus, Michael Flemming, Glenn Harrison, Scott Irwin, Eric Johnson, Peter Locke, Stewart Mayhew, Greg Niehaus, an anonymous referee, and seminar participants at the 2007 Financial Management Association and the 2007 Southern Finance Association annual meetings for helpful comments.
SLIPPAGE AND THE CHOICE OF MARKET OR LIMIT ORDERS IN FUTURES TRADING
Version of Record online: 7 SEP 2009
© 2009 The Southern Finance Association and the Southwestern Finance Association
Journal of Financial Research
Volume 32, Issue 3, pages 309–335, Fall 2009
How to Cite
Brown, S., Koch, T. and Powers, E. (2009), SLIPPAGE AND THE CHOICE OF MARKET OR LIMIT ORDERS IN FUTURES TRADING. Journal of Financial Research, 32: 309–335. doi: 10.1111/j.1475-6803.2009.01252.x
- Issue online: 7 SEP 2009
- Version of Record online: 7 SEP 2009
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.