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How much difference does impact cost make to backtesting results?

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Kapil Marwaha

Impact cost should be taken into account when backtesting if your strategy includes market orders being placed.  The impact cost is affected by the liquidity of the symbol and you may want to study the Bid-Ask Spread if you want more accurate results. Once you get a brief idea of the spread you could convert it into a specific figure or percentage and reduce your profit with every trade executed by your backtester. 


Vishal Mehta,CMT
Vishal Mehta,CMT WIZARD

A lot depends on which instrument you are trading. Considering if i am trading Nifty Monthly with 100 Strikes there is ample liquidity but same can not be said for Bank Nifty new Breakout level. 


As Kapil rightly mentioned that you need to track the instrument bid ask spread to check the impact cost but yes it should be part of your backtesting. 

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