Implementation Shortfall

Implementation shortfall is the gap between the price that justified a trade and the price actually achieved, measured across the whole life of the order. It bundles the spread paid, the slippage on entry and on exit, the delay between the signal and the click, and the portion of the intended size that never got filled at all. Institutions measure it because it is the honest cost of turning a decision into a position; retail traders rarely measure it and therefore file the difference under bad luck. Tracking it is not difficult from the account statement: record the price at the moment of the signal, compare it with the average fill, and total the difference across a few hundred trades. A strategy whose modelled edge is smaller than its implementation shortfall does not have an edge.