From CFAI EOC Reading 45 Problem 4.C “By definition, orders executed on crossing networks, such as POSIT, avoid market impact because the orders are crossed AT THE EXISTING MARKET PRICE DETERMINED ELSEWHERE, REGARDLESS OF SIZE. Therefore, blah blah” Is this true for all ECNs? I guess the downside is not getting orders filled (delay and opp costs as measured by implementation shortfall).
Yes, as I understand it - I believe you eliminate bid/ask spread and there is no market impact cost. And like you said, downside is time uncertainty.
I think Toronto stock exchange is an ECN but I never was able to picture exactly how it works. I guess they batch orders and execute trades periodically - but because of high volumes you can’t really tell it’s a ECN beats me
toronto is order-driven, which is different than ECN. order driven markets have prices set by public limit buy and sell orders. so when you see a bid quote on the TSX, that is the lowest public price that an individual is willing to buy it at, and vis a vis for ask. ECN is anonymous, and is for institutional trading. also, I don’t think there is time uncertainty because it trades at specific, known points in the day. the price the trades uses is the mid-point of the buy and sell on the underlying market the stocks are listed on.
mwvt9 Wrote: > > I guess the downside is not getting orders filled > (delay and opp costs as measured by implementation > shortfall). exactly. only the amount available to buy or sell is executed. this differs from, say NYSE, where the trade walks down (up) to the next price to fill the order
great point taketwo - i have this wrong in my head.
taketwo Wrote: ------------------------------------------------------- > mwvt9 Wrote: > > > > > I guess the downside is not getting orders > filled > > (delay and opp costs as measured by > implementation > > shortfall). > > > exactly. only the amount available to buy or sell > is executed. this differs from, say NYSE, where > the trade walks down (up) to the next price to > fill the order Thanks tt. I get it now. It makes sense too that there wouldn’t be any b/a spread as there is no dealer who needs to profit based on holding inventory.
correction, I should have said “highest” public limit price in my bid example on the TSX. I can see this showing up maybe in an example where a pension fund is rebalancing, and a consultant is making statements about the best way to buy or sell a large chunk of stock.