Trading 123 Flashcards
What are the four reasons for trading
Profit seeking
RIsk management
Cash flow need
Margin calls
What is alpha decay
Alpha decay is the potential loss in alpha from the INSTANT an investment decision is make
What is an profit seeking trade
Buying or selling a new position to make money
WHat is a risk management trade
Trading to keep the risk charecteristics of a portfolio in line with its constitution
Also hedging
cash flow needs - why is this a reason to trade
Trading/selling to have cash for portfolio redemptions while investing to put money to work on applications
What is a dark pool v lit pool
Dark pool is a trading venue where you cant see the oppositions trade amount or name.
Lit is fully transparent - like a lit room
Margin calls, why is this a reason to trade
selling down positions for cash to make a margin call
WHat are the 4 inputs to trading strategy
Security charectertisc
Order summary
Market conditions
RIsk aversion
WHat are security charecteristics and order summary in a trading strat
Security charecteristics is like ETF or stock or derivative etc.
Order charecteristics is the size and the side of the trad
Increased volatility will do what to execution risk
Make is higher, because the stock is more likley to be in a less good position when you trade
What is market impact risk
It is the risk of a dramatic increase in stock price if you shock the market with a big trade
What is execution risk
Risk that the stock’s price may change negatively the longer you drag the trade out
What are 2 main ways to evaluate how well you have traded (pre trade and intra day)
Decision price (comparing price paid against the price when you made the investment decision) VWAP - average price
What is a scheduled trading alogrithm
It uses histoic prices to fill small orders. Or uses VWAP to fill larger orders
