What is implementation shortfall?
Also known as the 'slippage', implementation shortfall refers to the difference between the decision price and the final execution price of the trade, including taxes, commissions and other fees. In order to maximise profits, implementation shortfall should be as low as possible.
Where have you heard about implementation shortfall?
Implementation shortfall is a term used in financial markets and in the last 25 years, has become the 'go to' benchmark for measuring trade performance. The notion was first introduced by André Perold in 1988.
What you need to know about implementation shortfall.
In order to minimise implementation shortfall and maximise profitability, institutional investors rely heavily on real-time quotes and automated trading. However, there are some limitations involved with relying on implementation shortfall - for example, it lacks specific details so slippage measurement could potentially be misleading and inadequate.
In recent years, more granular data such as the availability execution level date with FIX tags have helped to provide better insight. Implementation shortfall can also be used to evaluate the quality of trading venues, the performance of traders and the effectiveness of brokers.
Find out more about implementation shortfall.
Better understand implementation shortfall by reading our definitions of decision price and execution price.