Vol 1 Chapter 3

Question 1

Explicit Transaction Costs:

Answer 1

costs of executing trading strategy, like below

Question 2

Commissions

Answer 2

Direct charge that broker/dealers make for executing orders for clients

Question 3

· Information costs

Answer 3

Costs associated with acquiring the needed info required to trade

Question 4

Implicit Transaction Costs:

Answer 4

costs of a transactions that aren’t itemized and paid directly to the broker/agent

Question 5

Spread:

Answer 5

Bid (Buy) price - Ask (Sell) price

Question 6

Types of Spread

Answer 6

Market spread:
Dealer spread
Effective half-spread:

Question 7

Market spread:

Answer 7

different between best bid and best ask quoted in the market

Question 8

Dealer spread

Answer 8

quoted spread of a particular dealer

Question 9

Effective half-spread:

Answer 9

trade price - (ask + bid)/2

Question 10

·Price impact costs

Answer 10

1) Execution of an order has the potential to change the price (bid/ask) in market
2) The impact could be permanent and temporary