Implementation shortfall
Implementation shortfall is the difference between the result of a trade decision on paper, executed instantly at the price when it was taken, and the result actually obtained. Introduced by André Perold in 1988, it adds up everything execution costs: the price drift before the order reaches the market, the spread and impact paid while filling, the opportunity cost of any quantity left unfilled, and fees.
Senzoukria · Glossary · Updated September 2026
The components
| Component | Measured as | Typical cause |
|---|---|---|
| Delay cost | Arrival price minus decision price, on the filled quantity | Time between deciding and sending the order |
| Execution cost | Average fill price minus arrival price, on the filled quantity | Spread paid, market impact, slippage |
| Opportunity cost | Later price minus decision price, on the unfilled quantity | Limit orders that never filled |
| Fees | Commissions and exchange fees | Every contract traded |
A worked example
A trader decides to buy 10 ES when the mid-price is 5,000.00. The order reaches the market two seconds later, with the mid at 5,000.25. It is a limit order that fills 8 contracts at an average of 5,000.50; the other 2 never fill, and the market ends the session at 5,010.00. With ES at 50 dollars per point, the delay cost is 8 × 0.25 × 50 = 100 dollars, the execution cost 8 × 0.25 × 50 = 100 dollars, and the opportunity cost 2 × 10.00 × 50 = 1,000 dollars, before fees. The two contracts that were never bought cost far more than the ticks paid on the eight that were.
Why it matters for order choice
- Market orders keep the opportunity cost near zero and pay the spread and impact instead.
- Limit orders lower the execution cost and raise the opportunity cost, because they miss exactly the moves that run away from them.
- Measuring only slippage on filled orders makes passive execution look free; the shortfall puts the missed trades back in the account.
- The decision price must be recorded when the decision is made, otherwise the delay cost disappears from the measurement.
In Senzoukria
The application does not compute implementation shortfall. Its ingredients can be gathered by hand: the journal records each trade's entry and exit, and the 'Review in Replay' button reopens a trade in the Replay workspace, where the price at the moment of the decision and the path after it can be read. The backtest panel's transaction costs apply a slippage in ticks against every entry and a round-trip fee, which covers the execution-cost and fee parts of the shortfall for tested strategies; missed limit fills are the part a trader has to track separately.
Related
- Slippage
- Market impact
- Transaction costs
- Adverse selection
- Trading journal
- Reviewing a journal trade in Replay
In the same section
- Implied orders
- Immediate-or-cancel order
- Implied volatility
- Imbalance ratio
- In-sample vs out-of-sample
- Imbalance
- Inactivity rule
- Iceberg order
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Frequently asked questions
- Is implementation shortfall the same as slippage?
- Slippage is one part of it: the difference between an expected price and the fill. Implementation shortfall also counts the drift before the order was sent, the cost of the quantity that was never filled, and fees, all measured against the price at the moment of the decision.
- Why include the unfilled quantity?
- Because not trading is also an outcome. If the decision was right and the order did not fill, the profit that was planned did not happen. Ignoring that cost makes patient limit orders look cheaper than they are.