Arrival Price

The arrival price is snapped at the exact moment a trading decision is made—typically when an order is released to an execution algorithm or a trader hits 'send'. This timestamp is critical because it isolates the cost of immediacy from prior market movements. Unlike VWAP or TWAP, which average prices over a window, the arrival price is a point-in-time benchmark that captures the market's state before any information leakage or impact from the order itself occurs. The precision of this timestamp directly affects the accuracy of subsequent cost attribution.

The standard convention defines arrival price as the midpoint of the best bid and offer (BBO) at decision time, not the last traded price. This avoids the distortion of bid-ask bounce and provides a fairer representation of the asset's true value before the trade. Using the midpoint ensures that the benchmark is not biased by whether the previous trade was buyer or seller-initiated. For illiquid securities where the spread is wide, this convention is essential for isolating genuine slippage from the natural cost of crossing the spread.

The difference between the arrival price and the final execution price represents the immediacy cost—the premium paid to execute now rather than passively wait. This cost decomposes into:

• Market impact: Price movement caused by the trade's own liquidity consumption
• Spread crossing: The cost of lifting the offer or hitting the bid
• Adverse selection: Movement from informed counterparties By benchmarking against arrival price, traders can quantify exactly how much urgency cost them, enabling strategy optimization for different alpha decay profiles.

Using arrival price as a benchmark creates a consistent feedback loop between pre-trade cost models and post-trade analysis. Pre-trade models forecast the expected slippage from arrival price given order size, volatility, and urgency. Post-trade TCA then measures the actual slippage against the same benchmark. This alignment allows traders to:

• Calibrate cost models with real execution data
• Identify systematic over- or under-performance
• Adjust algo parameters based on empirical arrival cost distributions

Arrival price is inherently a short-horizon benchmark, typically measuring performance over minutes to hours rather than days. This makes it ideal for evaluating high-urgency orders where alpha decay is rapid and the trader's primary concern is minimizing immediate slippage. For orders with longer execution horizons, arrival price is often supplemented with interval benchmarks like VWAP or TWAP. The choice of benchmark horizon must match the alpha decay profile of the trading signal to avoid penalizing or rewarding the wrong behavior.