Implementation Shortfall
Market Microstructure glossary · Market Impact & Execution Algorithms
Definition
The difference between the return of an actual portfolio and the return of a paper portfolio that trades at the decision-time benchmark price.
Implementation Shortfall in plain English
Implementation shortfall measures how much money you LOSE between deciding to trade and actually finishing the trade. The moment you decide, there's a price on the screen — but by the time your big order is fully filled, the price has usually moved against you (and you paid fees too), so your real result falls short of that "paper" ideal. Imagine deciding to buy a hot sneaker at $200, but as you scramble to grab every pair you want, the price creeps to $215 — that $15 gap per pair is your shortfall. Traders track it to see how much the messiness of real-world trading actually cost them.
Practice Implementation Shortfall
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