Implementation shortfall (slippage)

IS – implementation shortfall, or slippage. Large positive values imply a good execution while large negative values imply a poor execution.

IS := Direction * Executed_QTY * (Arrival_Mid_Price - VWAP)

To calculate the Implementation Shortfall (IS) for each order, we need to determine the direction of the order, the executed quantity (sum of QTY_FILLED), the arrival mid-price, and the Volume Weighted Average Price (VWAP) of the order. We will then apply the provided formula to calculate the IS. Here’s how you can do it using onetick.py:

import onetick.py as otp

# Define the symbol, orders database, quotes database, and date
symbol = 'TSLA'
orders_db = 'ORDERS_DB'
quotes_db = 'NYSE_TAQ'
date = otp.dt(2022, 3, 2)

# Load orders and quotes data
orders = otp.DataSource(orders_db, tick_type='ORDER', symbol=symbol)
quotes = otp.DataSource(quotes_db, tick_type='QTE', symbol=symbol)

# Filter for new (arrival) orders
arrival_orders, other_orders = orders[(orders['STATE'] == 'N')]

# Join arrival orders with quotes based on timestamp
arrival_orders_with_quotes = otp.join_by_time([arrival_orders, quotes])

# Calculate current mid price for each quote tick
arrival_orders_with_quotes['MID_PRICE'] = (arrival_orders_with_quotes['ASK_PRICE'] + arrival_orders_with_quotes['BID_PRICE']) / 2

# Merge all ticks back to apply aggregation properly
merged_orders = arrival_orders_with_quotes + other_orders

# Aggregate to carry forward arrival mid price, VWAP, 'SIDE' field, and sum of 'QTY_FILLED'
orders_agg = merged_orders.agg({
    'ARRIVAL_MID_PRICE': otp.agg.first('MID_PRICE'),
    'SIDE': otp.agg.first('SIDE'),
    'VWAP': otp.agg.vwap('PRICE_FILLED', 'QTY_FILLED'),
    'EXECUTED_QTY': otp.agg.sum('QTY_FILLED')
}, group_by='ID')

# Calculate Direction (1 for BUY, -1 for SELL)
orders_agg['DIRECTION'] = orders_agg.apply(lambda tick: 1 if tick['SIDE'] == 'BUY' else -1)

# Calculate IS (Implementation Shortfall)
orders_agg['IS'] = orders_agg['DIRECTION'] * orders_agg['EXECUTED_QTY'] * (orders_agg['ARRIVAL_MID_PRICE'] - orders_agg['VWAP'])

# Select relevant fields
orders_with_is = orders_agg[['ID', 'IS']]

# Run the query for the specified date
df = otp.run(orders_with_is, date=date)