Abstract

Traditional transaction cost models, originating from equities markets, inadequately address the complexity of futures markets. We introduce Pulse, BestEx Research's futures transaction cost model, specifically designed to capture nuances unique to futures, such as shadow liquidity, large tick sizes, intraday liquidity variations, and execution data biases. Pulse employs a novel approach to capture the true liquidity of an instrument for estimating market impact using market depth and bid-offer spread rather than traditional measures like volatility and average daily volume. The model separates total costs into distinct components, market impact and order placement, offering greater clarity and increased accuracy. Empirical tests demonstrate Pulse's robustness across diverse futures products, distinct expiries within each product, varying times of day, a range of order sizes, varying execution speeds, and different trading conditions.

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