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Limit orders and slippage?

Hi. I am new to Quantopian and trading. I have a couple of questions about limit orders and slippage. A brief background as to why I am asking this question follows.

Due to high volatility in the market, a potential strategy could be to buy certain stocks or leveraged ETFs or inverse ETFs, and then, set a limit order immediately to make sure not to lose more than a certain percentage of the investment. Example: I buy an inverse ETF, 3x leveraged, at $11.10 and then, I set a limit order at $11.00 assuming that the volatility in the ETF is about $0.10. I buy it because of certain events that trigger this inverse ETF to ramp up during a certain short window period during the day of trading. If it does not go up, I can lose at most $0.10 on every $11.10 that I invest, assuming no slippage. However, if my bet succeeds, then the ramp takes the ETF price to $11.90, and I can maybe set a new limit order at $11.80. I can continue doing this for as long as the ramp continues to occur.

  1. Is it possible to use limit orders to minimize losses like in the above example?

  2. If yes to the above, what is the worst case loss due to slippage that occurs during the execution of such limit orders?

2 responses

This and this can help

Thank you Vladimir! That's a lot of information. I am going to chew on it for a while. I do see why it is not a good idea to trade if I do not know what I a doing :)