[Note Quant] Optimizing the Trading Cost in presence of Market Impact

2022, February 24th

Author : Lamine TRAORE, Expert Consultant Quant Banking Risk (Quant Practice ) at Quanteam

Discover our new “Note Quant – Optimizing the Trading Cost in presence of Market Impact” about Optimization of the Trading Cost in presence of Market Impact.
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Few details about the Note :

It is well known that most funds managers do not outperform their benchmark. The main reason is the transaction costs. The most important transaction cost is the trade impact a.k.a. market impact component. In each market, the quoted price stands for a given (stable) level of traffic speed (called its liquidity), so whenever you want to buy or sell a stock you will make it speed up or slow down. Therefore, you will have to pay for that. The more you will affect the liquidity the more you will do so for the price you will have to pay.In words, the liquidity of a stock (or asset) is the capacity to buy or sell it without causing an adverse price movement. The market impact of a given trade venue is the quantity of liquidity this trade will require…. […]

 

“With technology, now it is quite possible to implement investment decisions at the cheapest cost and with accurate view of the liquidity before the trade. The rise of high frequency trading is one of the new evolutions. “

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Note Quant #4 - OPTIMIZING THE TRADING COST IN PRESENCE OF MARKET IMPACT


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