i am developing a simulation trading in US stocks. i have 1 transaction a day per stock, assumed for simplicity to be executed at the daily closing price. in order to determine a reasonable maximal size for the transaction, i need some assumption concerning the liquidity of the stock. if the stock's daily turnover is X USD, i would like to know what would be a reasonable assumption for the transaction size relative to X, so that the transaction is considered small enough to be executed at the historical daily price. e.g. is 0.1X good enough?
The common practices are:
- if you trade less than 8% of the Average Daily Volume, you can use a VWAP or Implementation Shortfall algo.
- you need to "add" a slippage of 1/3 of the bid ask spread of the stock.
Your only issue is that you want to use the close price instead of the VWAP one. Best option is to use the daily VWAP as a proxy. Otherwise measure the std between the close and the VWAP and add a multiple of it to your "liquidity premium".
You can find more details in "Navigating Liquidity 6: A global menu for optimal trading" pages 42 and more.