implementation shortfall, effective spread and VWAP

CFA Level III
#1

to good traders , is effective spread >quote spread or effective spread should we use quote spread as benchmark for effective spread? for imple.shortfall calculation, it is mentioned that we use paper portf. gain minus real porfolio gain, so should we add explicit trading cost or subtract explicit cost ? if REALIAZED PROFIT／LOSS is positive，is it a loss or gain in implementation shorfall formula? to evaluate TRADING COST，under which circumstnace, we have to use imple.shortfall and can’t use VWAP? for those stocks with high liquidity and small spread, should we use simple logic participation, VWAP or implementation shortfall for algorithm trading?under which circumstance, we should use VWAP?under which circumstance, we should use Simple participation rather than others?

#2

you want low effecive spreads, that means markets are liquid and costs are low

explicit costs are a cost you add it to the other implicit costs…

positive = cost

sounds like you need to study more bro

#3

To evaluate TRADING COST，under which circumstnace, we have to use imple.shortfall and can’t use VWAP?

for those stocks with high liquidity and small spread, should we use simple logic participation, VWAP or implementation shortfall for algorithm trading?under which circumstance, we should use VWAP?under which circumstance, we should use Simple participation rather than others?

#4

MPS boost ty.

#5

what do you mean “MPS boost ty.”?

#6

You don’t have to use either to evaluate trading costs, they are two different options for evaluating them, both have benefits and disadvantages. VWAP can be gamed, but Implementation s/f needs alot of inputs and is unintuitive. It’s basically a choice that the firm makes.

SLP VWAP algorithms are best when the stock has a defined trading pattern throughout the day, and there is not urgency to complete the order. Generally better for liquidity motivated traders. Implentation S/F algorithms would be best suited for trades that have more urgency since they attempt to minimize delay costs.

If you don’t know, that’s ok. I’ll let Mark tell you!

#7

I can’t do it… i actually have (somewhat) of a conscience!