# The impact of slippage on performance

**Understanding the Impact of Slippage on Performance**

**Understanding the Impact of Slippage on Performance**

While our current calculations consider the balance between **utilization** and **performance**, it's important to note that **capping TVL** to maintain high performance is crucial. Larger position sizing can negatively impact profits, particularly when accounting for **slippage**—the difference between expected and actual execution prices of trades.

To illustrate this, let's assume the following parameters:

**Win rate**: 30%**Risk-to-Reward ratio**: 4:1 (for every 1% risked, we aim for a 4% return)**Profit per trade**: 4%**Loss per losing trade**: 1%**Extra slippage per trade**: 0.22% (as indicated by performance reports)

Out of **100 trades**, 30 are profitable, yielding a 4% return per trade, while the other 70 hit the **Stop Loss** at 1%, with both types of trades affected by slippage. Let's calculate the expected performance **with and without slippage** based on these assumptions.

**1. Without Slippage**:

**1. Without Slippage**:

**Profitable trades (30%)**: 30 trades × 4% profit =**120%****Losing trades (70%)**: 70 trades × 1% loss =**70%****Net performance**: 120% - 70% =**50%**

Without slippage, the expected net performance over 100 trades would be **50%**.

**2. With Slippage (0.22% per trade)**:

**2. With Slippage (0.22% per trade)**:

**Profitable trades (30%)**: 30 trades × (4% - 0.22%) = 30 trades × 3.78% =**113.4%****Losing trades (70%)**: 70 trades × (1% + 0.22%) = 70 trades × 1.22% =**85.4%****Net performance**: 113.4% - 85.4% =**28%**

With a **0.22% slippage rate per trade**, the expected net performance is reduced to **28%**.

**3. With Increased Slippage (0.44% and 0.66%)**:

**3. With Increased Slippage (0.44% and 0.66%)**:

Let’s calculate the impact of higher slippage rates—0.44% and 0.66% per trade.

**a. Slippage at 0.44%:**

**Profitable trades (30%)**: 30 trades × (4% - 0.44%) = 30 trades × 3.56% =**106.8%****Losing trades (70%)**: 70 trades × (1% + 0.44%) = 70 trades × 1.44% =**100.8%****Net performance**: 106.8% - 100.8% =**6%**

With **0.44% slippage**, the net performance drops to **6%**, indicating a drastic reduction in profitability.

**b. Slippage at 0.66%:**

**Profitable trades (30%)**: 30 trades × (4% - 0.66%) = 30 trades × 3.12% =**93.6%****Losing trades (70%)**: 70 trades × (1% + 0.66%) = 70 trades × 1.88% =**131.6%****Net performance**: 93.6% - 131.6% =**-38%**

With **0.66% slippage**, the strategy results in a **negative performance** of **-38%**, indicating significant losses.

**Conclusion**:

**Conclusion**:

This analysis demonstrates how **slippage** can have a profound impact on trading performance:

Starting with a

**baseline net performance**of**50%**without slippage, even a small slippage rate of**0.22%**reduces the net performance to**28%**.As slippage increases to

**0.44%**, net performance declines to**6%**, and at**0.66%**, performance turns**negative (-38%)**.

Minimizing slippage is crucial for maintaining profitability. Even with a high win rate and favorable risk-to-reward ratio, slippage can erode gains, emphasizing the need for efficient execution strategies to maximize the effectiveness of the overall trading strategy.

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