When execution tricks are really the strategy: separating edge from friction

[Fairman]

When execution tricks are really the strategy: separating edge from friction

Some scalping systems seem to make money from price prediction, yet the profit comes mainly from execution quirks, like capturing the spread with limit orders in a stable range or exploiting a feed that lags slightly. That is not a problem in itself, but it is worth understanding.

The danger arises when the quirk disappears. A broker changes its routing, a new risk filter is installed, or the spread structure shifts, and the edge vanishes overnight without any change in the market.

To diagnose, decompose results. Take the trade log and compute what the profit would have been using mid prices with no costs, then add costs back in gradually. If the paper edge is tiny and the entire profit sits in a favorable fill pattern, the strategy is fragile.

A system whose edge survives at mid price with pessimistic fills is far more robust.

Knowing the source of returns helps decide how much to risk and when to stop.

Has any system's profit turned out to be mostly execution quirk rather than market prediction?