Execution Cost Simulator: Worked Examples

Permanent 2.83 bps, temporary 0.20 bps, half-spread 2.50 bps, total 5.53 bps ($5,528), duration 78 min.

Permanent impact (2.83 bps) and the half-spread (2.50 bps) are the two big terms; temporary impact is rounding error at 2 percent of ADV. For a small, liquid order the cost is roughly the half-spread plus the impact of moving the book a touch.

Permanent 6.32 bps, temporary 1.00 bps, half-spread 2.50 bps, total 9.82 bps ($49,123), duration 390 min.

Five times the order does not cost five times the impact; permanent impact rises only to 6.32 bps because it scales with the square root of order size. But total cost jumps to $49,123 on the larger notional, and the order now needs a full trading day. Size hurts through the square root, not linearly.

Permanent 0.89 bps, temporary 0.02 bps, half-spread 10.00 bps, total 10.91 bps ($1,091), duration 8 min.

Here the half-spread of 10 bps is over ten times the impact. For small orders in illiquid names the spread, not impact, is your real execution cost, so patient limit orders that avoid crossing the spread matter far more than slicing for impact.

Total cost unchanged at 5.53 bps ($5,528), but duration drops from 78 to 31 minutes.

Raising participation only shortens the fill; the impact terms are identical. In this model speed buys you reduced timing risk, not lower impact, so the participation rate is a risk-versus-time decision rather than a cost decision.