R11- Transaction Costs Flashcards
F- effective spead
Step 2- if effective cost are less than quoted spread, that are prive improvement on trade
F- effective spead
Step 2- if effective cost are less than quoted spread, that are prive improvement on trade
Explicit cost - in a context of transaction costs
Brokerage, taxes, and fees.
Implícit Costs (4) transaction context
Delay cost vs. opoortunity cost
Delay- adverse price moviment during the lag in executing a large trade
Opportunity - failed / unfilled orders or failed trading opportunities
Inside spread
Difference betwen best ask and best bid
Benchmark VWAP
Weighted average price that all trades executed during time interval
Implementation shortfall describe method - context of compute transaction costs
Difference between the value of actual portifolio and hypothetical paper portifolio. All ordens are executed at the price when order is placed.
Explain dealer price
F-VWAP
Reasons that drive the development os automated trading systems (5)
Market fragmentation
Security trades in múltiple Markets. Difference in liquidity between these eletrônic markets.
Eletronic dealers how they profit
Post bid and offer prices to profit from the spread.
Eletronic arbitrageurs
Trade on multiple markets seeking to exploit price discrepancies.
Eletronic front runners
AI to sniff large trades on the same side and use low lantency to trade ahead of then.
Buy side traders
Execute orders for portifolio managers and use order managment systems (OMSs).
How low latency traders profit
Advanced order type
Limit order with dinamic limit price that varies with benchmark
Hidden orders
Limit orders that are hidden from the market, except for the exchange receiving then.
Leapfrog strategie
Pratice of beating the best bid or ask price
What moviment have higher risk (take or offer liquidity?)
offering liquidity has higher risk of not complete transaction
Wash trading
Trading between commonly controled accounts to create false liquidity.
Layring
Limit orders posted to create fake optimism or pessimism
Rumormongering
Dissemination of fake information to affect target trader’s value assessments.
Cornering/ Short selling
Partie acquires asset and related future contract. Forcing the couterpartie to buy at exorbitant price.
Diference between real time market surveillance and monitoring
Surv- detect portential abuse (like wash trading or front running)
Monitoring- detect anomalous market movements.
