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Answer using (P_execution - P_decision )/ P_decision = Realized profit/loss
It’s not consistent with curriculum. Why?
- On Monday, the shares of Impulse Robotics close at £10.00 per share.
- On Tuesday, before trading begins, a portfolio manager decides to buy Impulse Robotics. An order goes to the trading desk to buy 1,000 shares of Impulse Robotics at £9.98 per share or better, good for one day. The benchmark price is Monday’s close at £10.00 per share. No part of the limit order is filled on Tuesday, and the order expires. The closing price on Tuesday rises to £10.05.
- On Wednesday, the trading desk again tries to buy Impulse Robotics by entering a new limit order to buy 1,000 shares at £10.07 per share or better, good for one day. That day, 700 shares are bought at £10.07 per share. Commissions and fees for this trade are £14. Shares for Impulse Robotics close at £10.08 per share on Wednesday.
Realized profit/loss reflects the difference between the execution price and the relevant decision price (here, the closing price of the previous day). The calculation is based on the amount of the order actually filled:
[700*(10.07- 10.05 )]/1000\ *10