Note Quant - Optimizing the Trading Cost in presence of Market Impact

Note Quant - Optimizing the Trading Cost in presence of Market Impact

Note Quant - Optimizing the Trading Cost in presence of Market Impact 1000 938 Quanteam

Download our new "Quant Note - Optimizing the Trading Cost in presence of Market Impact" free of charge. This few-page note offers a detailed approach to Optimizing the Trading Cost.

It's well known that most fund managers don't outperform the "market". This is mainly due to transaction costs. Especially the cost of trade impact, which is called market impact.
In every market, the quoted price is associated with a given (stable) number of buys and sells, called liquidity. Every time you want to buy or sell a share, you disrupt the stability of this liquidity (either by increasing or reducing it). You'll then face market resistance, which takes the form of a surcharge. This additional cost is proportional to the quantity of shares traded.
The liquidity of a share (or asset) is the ability to buy or sell it without causing an unfavorable price movement. The market impact of a given set of trades is the amount of liquidity this transaction will require...[...]

Thanks to technological developments, it is now possible to have a precise view of the liquidity of one (or more) trade(s). This makes it possible to select the optimum investment strategy automatically and instantaneously. The rise of high-frequency trading is one of the main applications of this.
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an article written by...


Quant Banking Risk Expert Consultant (Quant Practice) at Quanteam

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