Hi guys! 

There have been some pretty interesting posts on the effect of slippage on model performance. However, reading these posts gave me insight on a meta level, nevertheless I'm not yet able to translate these results into the implecations for my own strategy. So i need your help :) 

I have a question regarding slippage modeling in pair trading. I have implemented a pretty simple pair trading algoritme looking at zscores of cointegrated equity pair. Trading these pairs successfully in both backtests an out of sample data (live paper trading). The juice of this strategy is in how to find the pairs and when to stop using a pair. However, so far my models did not take into account slippage. Currently I'm trading at a minute Resolution and most holding periods are pretty short mostly only a few minutes let's say in the 2 to 20 minute range. 

Implementing a custom slippage model from the documentation about reality modeling is obviously detrimental to the performance of my model:

class CustomSlippageModel: def __init__(self, algorithm): self.algorithm = algorithm def GetSlippageApproximation(self, asset, order): # custom slippage math slippage = asset.Price * 0.0001 * np.log10(2*float(order.AbsoluteQuantity)) self.algorithm.Log("CustomSlippageModel: " + str(slippage)) return slippage


Yet, I'm wondering whether this is a relevant manner to model slippage for the type of model since this assumes slippage is always negative. With a marketorder being both long and short in similar equities this might not be as relevant. 

To test the robustness of my strategy I'm thinking of different manner of introducing 'slippage'. My idea is to trade (instant) on the t-1 signal (i.e. trading now on the signal of one minute ago). This will introduce a kind of 'slippage' that might be both positive and negative. 

So questions that might be interesting for a broader audience:

- How relevant is slippage modeling in pairs trading?

- How to test if a pair trading strategy is robust agains slippage? 

- Would it yield valuable insight knowing how a strategy performs on a t-1 signal?