Use the following information to determine how the trades should be placed for the following shares. Stock Ticker — Trade Size — Average Daily Volume — Spread — Urgency ABCD — 20,000 — 400,000 — 0.04% — Low LMNO — 60,000 — 1,000,000 — 0.07% — High WXYZ — 75,000 — 150,000 — 0.60%— Low A) ABCD should be traded using a shortfall implementation strategy, LMNO should be placed with a broker, and WXYZ should be traded using a simple logical participation strategy. B) ABCD should be traded using a shortfall implementation strategy, LMNO should be traded using a simple logical participation strategy, and WXYZ should be placed with a broker. C) ABCD should be traded using a simple logical participation strategy, LMNO should be traded using a shortfall implementation strategy, and WXYZ should be placed with a broker.
I will pick C!
C for me too
C for me too
Your answer: A was incorrect. The correct answer was C) ABCD should be traded using a simple logical participation strategy, LMNO should be traded using a shortfall implementation strategy, and WXYZ should be placed with a broker. The trade for stock WXYZ is large relative to average daily trading volume (75,000/150,000 = 50%) and has a large spread. Because of these characteristics, it should be traded through a skilled broker or through a crossing system to minimize the spread. The trade for stock ABCD is relatively small (20,000/400,000 = 5%) and the spread is low. The ABCD trade is of low urgency and can be traded over time. It is thus suitable for a simple participation strategy based on VWAP or other benchmark. The LMNO trade is of small relative size (60,000/1,000,000 = 6%), has small spreads, and high urgency. It should be traded more quickly using an implementation shortfall strategy.
Basically its trade volume / daily volume ratio and spread size. If either of them or both of them is higher, then that stock is unfit for algorthimic trade.