Orders and Execution · Futures Trading Guide
A strategy must pay for entering and leaving the market. Small theoretical advantages can disappear after spreads, fees and imperfect fills.
Start with executable sides
The bid represents displayed buying interest and the ask displayed selling interest at stated size. A last trade is historical. Buying at the ask and immediately selling at an unchanged bid loses the spread before fees. The midpoint is a benchmark, not a promised fill. Large orders can consume more than one price level.
Translate costs into the same unit
Assume a fictional contract has a $10 tick value and a one tick spread. A round trip across unchanged quotes costs $10. If total fees are $4 and additional adverse execution totals one tick, the estimated cost is $24. An expected gross advantage of $20 per trade would not cover that estimate. State whether quoted commissions are per side or per round trip.
Avoid charging the same friction twice
If a backtest already enters at observed asks and exits at observed bids, the quoted spread is embedded in those prices. Do not subtract it again. If a test uses midpoint prices, it needs an explicit spread and execution model. Compare actual fills with the chosen decision benchmark to measure implementation shortfall, and retain the timestamp and available size.
Test difficult conditions
Repeat the estimate during normal activity, thin sessions and announcements. Costs can rise exactly when a strategy needs to exit. Include data subscriptions and platform charges when evaluating the whole activity, while distinguishing them from variable trade costs. Reject a result that becomes attractive only by assuming every order fills at the best displayed price with no queue, delay or adverse selection.
Try it yourself
A fictional trade earns five ticks gross, each worth $2.50. Spread and slippage total two ticks and round trip fees are $3. What remains?
Show the worked answer
Gross profit is $12.50. Execution friction is $5 and fees are $3, leaving $4.50.
Further reading
Educational material. Prices, margins and strategy examples are hypothetical unless explicitly identified as contract specifications. They are not trade recommendations. Futures losses can exceed deposited collateral. Product terms and eligibility vary by venue and jurisdiction.
