Dear all, I came across the below question in the Equity reading. Schweser says answer is B, which is fine…but doesnt internal crossing also reduce execution cost or is it the question of the BEST way…I know its simple but just to get things clear… Execution costs can be best minimized by utilizing: A. principal trades in order to maintain market anonymity. B. program trading because the trade is not motivated by a single security but rather by the need to trade a basket of securities. C. internal crossing networks because buying and selling the same security is common practice for large institutional money managers.
future contracts and external costs reduce execution costs
internal crossing networks because buying and selling the same security is common practice for large institutional money managers. This is not true- most institutional investors are not buying & selling the same thing at the same time…there is a conflict of interest there. And (A) doesn’t really address execution?
Even B is not correct. Program trading cost depends on all kinds of things, it is not necessarily cheaper. This is a bad question, IMHO.
Program trading generally carries lower commissions when looked at cost per share. When a buyer and seller cross the commission can be the same as a standard market trade
I specifically remember reading Andrew’s point that internal crossing wrong because its uncommon to run into many situations. From a practical standpoint, I have wondered if fund companies will do it with bond portfolios where a long term fund would sell bonds to the intermediate fund which would then sell to the short-term.