Chapter 25 Trade Strategy and Execution Flashcards
Ch 25 CFAI Flashcards
Agency trade
A trade in which the broker is engaged to find the other side of the trade, acting as an agent. In doing so, the broker does not assume any risk for the trade.
Alpha decay
In a trading context, alpha decay is the erosion or deterioration in short term alpha after the investment decision has been made.
Alternative trading systems
(ATS) Non-exchange trading venues that bring together buyers and sellers to find transaction counterparties. Also called multilateral trading facilities (MTF).
Arrival price
In a trading context, the arrival price is the security price at the time the order was released to the market for execution.
Decision price
In a trading context, the decision price is the security price at the time the investment decision was made.
Delay cost
The (trading related) cost associated with not submitting the order to the market in a timely manner.
Direct market access
(DMA) Access in which market participants can transact orders directly with the order book of an exchange using a broker’s exchange connectivity.
Execution cost
The difference between the (trading related) cost of the real portfolio and the paper portfolio, based on shares and prices transacted.
Implementation shortfall (IS)
The difference between the return for a notional or paper portfolio, where all transactions are assumed to take place at the manager’s decision price, and the portfolio’s actual return, which reflects realized transactions, including all fees and costs.
Multilateral trading facilities (MTF)
See Alternative trading systems (ATS).
Opportunity cost
The (trading related) cost associated with not being able to transact the entire order at the decision price.
Principal trade
A trade in which the market maker or dealer becomes a disclosed counterparty and assumes risk for the trade by transacting the security for their own account. Also called broker risk trades.
Request for quote (RFQ)
A non-binding quote provided by a market maker or dealer to a potential buyer or seller upon request. Commonly used in fixed income markets these quotes are only valid at the time they are provided.
Smart order routers (SOR)
Smart systems used to electronically route small orders to the best markets for execution based on order type and prevailing market conditions.
Trade urgency
A reference to how quickly or slowly an order is executed over the trading time horizon.
