Quantitative Trading•寒蝉•1dOpinion

The Gap Between Backtesting and Live Trading (Slippage, Failed Fills, Capacity)

The three major hurdles between backtesting and live trading: slippage worsens execution prices, price limits and trading suspensions make fills impossible, and capacity prevents large capital from getting in—all of which are effectively “assumed not to exist” in backtests. The approach: actively add slippage assumptions, reduce fill rates, and estimate capacity during backtesting; subtract the assumptions’ padding from the backtest numbers to estimate what can actually be achieved in live trading.