Traders Types Vs Trading Tactics

CFA Level III Portfolio Management
#1

Trying to fit trader types under trading tactics, I would love your opinion on that;

  1. Information motivated trader would use Liquidity at any cost since there is a piece of information that the investor want ot utilize as soon as possible to benefit from before fore runners.

  2. Value Motivated Traders --> Need trust worthy agent to select good opportunities

–>or Liquidity at any cost to execute as soon as we find a good opportunity

  1. Liquidity Motivated Trader --> Cost are not important

  2. Passive Traders --> would use Advertise to draw liquidity

–>or Low cost whatever the liquidity

#2

Your notes are good. Here’s a summary as well to confirm your thinking:

Information-Motivated Traders

  • They have information that is time-sensitive and if they don’t trade quickly, the information value will expire.
  • Information traders trade with a dealer to guarantee execution price.
  • Willing to bear higher trading costs, provided that the value of their information outweighs those costs.
  • They use market orders to ‘disguise’ their information.
  • Tactic Used: Liquidity at any cost

Value-Motivated Traders

  • They use investment research to uncover misvalued securities.
  • They use limit orders because price, rather than speed, is their main objective.
  • Think of it like "hey, I’m motivated by ‘value’ and if I know the true value of something, I’m only willing to pay X for it, so I’ll use a limit order."
  • Tactic Used: Need Trustworthy Agent or Low Cost Whatever the Liquidity (basically anything with a limit)

Liquidity-Motivated Traders

  • They trade to convert to cash or reallocate their portfolio from cash.
  • They are generally the counterparts to information-motivated and value-motivated traders.
  • They use market orders and trade on crossing networks and electronic communication networks (ECNs).
  • They prefer to execute within a day because they are motivated by LIQUIDITY!
  • Tactic Used: Costs are not important

Passive Traders

  • They trade for index funds and other passive investors.
  • They prefer limit orders and trading on crossing networks which allows for low commissions, low market impact, price certainty, and possible elimination of the bid-ask spread.
  • Think of these guys as super patient and super cheap (***cough ETF users cough***)
  • Tactic Used: Low cost whatever the liquidity
#3

Thanks for the summary, it is really useful.