Arrival Price
The arrival price is the midpoint of the national best bid and offer at the exact moment a trading order is submitted to the market, serving as the baseline benchmark against which implementation shortfall and execution quality are measured for institutional orders.
The arrival price captures the market's assessment of a security's fair value at the moment an investment decision becomes an active order. It is the midpoint of the NBBO — the average of the best bid and best offer — at the precise timestamp when the order enters the execution system. Because it reflects the midpoint rather than the ask (for a buy) or bid (for a sell), the arrival price is a transaction-cost-neutral reference point that does not inherently include the cost of crossing the spread.
The concept of the arrival price as an execution benchmark was central to the implementation shortfall framework developed by Andre Perold. The implementation shortfall for a buy order is the volume-weighted average execution price minus the arrival price, expressed as a fraction of the arrival price. This measure captures all the costs incurred between the investment decision and the completion of the trade: the cost of crossing the spread, the market impact of the order, and any adverse price drift that occurred during execution. A high implementation shortfall relative to the arrival price indicates poor execution quality or an adverse price move during the execution window.
The arrival price benchmark is most relevant for orders where execution urgency is high — where the portfolio manager wants to establish a position quickly, meaning the investment thesis is sensitive to execution speed. In such cases, the arrival price is the natural reference because it represents the opportunity that existed at the moment of the decision. An order that takes three hours to execute cannot be meaningfully benchmarked against prices that existed three hours ago unless one explicitly accounts for the interim market movement.
For IS algorithms specifically, the arrival price is both the starting benchmark and a real-time guide to execution pace. As the stock price moves relative to the arrival price during execution, the algorithm adjusts its schedule. If the price rises above the arrival price on a buy order, the algorithm faces an increasing shortfall and may accelerate execution to limit further adverse drift. If the price falls below the arrival price, the algorithm may slow down to allow the developing favorable opportunity to continue.
In post-trade TCA, arrival price slippage is reported alongside VWAP slippage as a complementary measure of execution quality. Arrival price slippage captures the urgency-adjusted cost of execution — how much worse (or better) than the initial market price the average execution actually was. Together with VWAP slippage, it provides a more complete picture of whether an execution strategy captured the available opportunity at the time of the decision.