Execution Simulation

Execution simulation is the process of modeling how an order will interact with an order book before it is actually submitted to the market. It uses historical or real-time data to estimate the impact of a trade on the market price, specifically accounting for slippage and liquidity constraints.

By simulating the execution path, traders can determine the optimal order size and strategy to minimize transaction costs. This is crucial in cryptocurrency and derivatives markets where order books can be fragmented or thin.

It helps in assessing how an order might be filled across different price levels or liquidity pools. Essentially, it provides a preview of the execution quality and potential price movement caused by the trader's own activity.