43: Trading Costs & Electronic Markets Flashcards
Real-time survellience of electronic markets seek to:
detect market abuses, allowing for faster response
Real-time monitoring detects:
market movements that could be potential early warning signs for market problems/crises
Wash trading is trading commonly controlled accounts to:
create an impression of false liquidity
Squeezing/Cornering involves obtraining control over resources needed to settle contracts and then:
withdrawing those resources, triggering defaults
Short squeezing is detected by looking for a high volume of trades in a security where…
a large portion of the public float is held by the company
Spoofing/Layering try to create the impression of optimism & pessimism through:
Fake limit orders
Market Manipulation, activities that produce false market data, includes:
- Trading for market impact
- Rumormongering
- Wash trading
- Spoofing/Layering
- Bluffing
- Gunning the market
- Squeezing/cornering
Abusive trading practices include:
- Front running
- Market manipulation
Electronic Trading have impacted trading strategies with the following techniques:
- Hidden orders
- Leapfrog
- Flickering quotes
- Electronic arbitrage
- Machine Learning
Benchmarks to evaluate trades include:
- Effective Spread
- Volume Weighted Average Price
- Implementation Shortfall
Implementation shortfall is the difference in value between:
a hypothetical “paper” portfolio
&
actual portfolio
Implicit costs of trading include:
- bid-ask spread
- market/price impact
- Delay cost (slippage)
- Opportunity cost
Market Fragmenation occurs when:
a security trades in multiple markets
Market Fragmentation can be overcome with:
- liquidity aggregation (creation of super book)
- smart order routing
