In the last newsletter, we started talking about the dreaded menace that haunts every trader…slippage.
Slippage is defined as the difference between the expected price of a trade and the price at which the trade is actually executed.
And slippage is always a possibility with market orders…especially if the stock is volatile.
Now, the novice trader may say, “What’s a few cents here or there?“
But those of us in the know understand that in this game, time is money and if we’re losing both, we’re losing big…
And here…we play to win.
Last time, I gave you some strategies to make your trades more slippage proof.
Today, as promised, we’re going to get down to brass tacks, or more specifically…nuts and bolts.
Things are going to get a little technical, but you’ve got this.
We’re going to talk about your trading hardware and optimizing it against slippage.
If strategy is the brains of your trading operation, your trading rig is the muscle…
All the best strategies in the world are useless if you can’t get your trades through consistently because of technical issues.
- The Problem
- A CPU (Central Processing Unit) that is benchmarked at 10,000 or greater
- 8GB RAM (Random Access Memory) on 64-bit operating system
- 250GB SSD (Solid State Drive)
If you’ve ever seen the trading floor on the stock exchange, you know things can get crazy rather quickly.
At least they used to… countless traders pushing, shoving, yelling into phones, trying to get their trades in at their desired price.
The same feeding frenzy happens in online trading.
Many times, particularly at the market open, there’s a huge surge of volume and data coming across the server that will crash most out-of-the-box computers that aren’t built to trading specifications.
If you don’t have a computer that’s beefy enough to handle the processing of all the indicators, data flow and graphical display, it’s going to slow you down and can definitely lead to slippage.
- The Solution
My big 3 necessities for a trading computer are as follows:
Slippage can be directly attributed to your CPU and your processing speed.
CPU performance is also directly related to the amount of memory on your computer.
Memory is basically the working area your computer has to do business in.
So, if you don’t have a lot of memory, your computer has to work much harder to keep up with the demand you’re putting on it.
When it starts running out of memory, your computer has to swap things in and out and start putting things on your hard drive, which really slows things down.
This is a big reason why many hard drives have been upgraded to solid state drives.
A solid state drive (SSD) is definitely a requirement these days for traders, along with a CPU with plenty of onboard memory.
Most traders will do well with a 64-bit computer with a minimum 8GB of RAM, and a minimum 250GB SSD.
Keep in mind that the more things you’re doing on your computer outside of trading, the bigger the drive you’ll need to prevent your trading applications from getting bogged down.
A 500GB SSD should be the max anyone would need for trading and most other basic computing functions.
Finally, your CPU must be benchmarked, because it can make or break your trading performance.
The basic benchmark for trading computers is 10,000 or greater.
If you’re trading on a computer with a benchmark under 10,000, you’re underperforming and will likely get bad fill, slippage, and generally poor performance from your trading.
Putting these initial pieces in place will significantly optimize your trading game and allow you to focus on more important things…
Like making money.
Next time, we’ll continue this discussion and talk about monitors and graphics card requirements for trading, but until then…