Trading Strategies

Does anyone have a good short list or can point me towards a prior thread that shows which strategy to use based on the market scenario? e.g. large b/a spread, low volume, privacy, etc… I can’t keep them together in my head.


good compilation by Bilal

Thanks. So in a rising market we want to use Implementation Shortfall as that will “front load” the trade to minimize our opportunity cost. Would we also use IS if the market was declining?

Would it be true to say that IS, TWAP, or VWAP should not be used for large orders? Is there a decent rule of thumb for what constitues a large order? e.g. % of avg daily volume

Schweser Volume 2 Exam 3 Q1 is good practice for these types of questions.

what differentiates TWAP from VWAP and IS is trading w.r.t time, flat volume and its good for thinly traded.

Broker (Program Trade) and ECN (market order) are good for large orders because they decrease the effect of large orders on the market. It depends if its urgent and batches then broker, if needs anonymous trading and its for an institution then its ECN however ECN have low costs for trading too.

(-) of ECN = can be gamed and no price discovery (trades at a specific pt in time)

If market is declining I would use vwap since its trading throughout the whole day why would I place an urgent trade early.

Don’t mess up VWAP of trade cost calculation and VWAP of trading strategy. IS of trade cost is good for large orders however vwap is not. But when it comes to IS for trading strategy, its for small orders, urgent, front load, risk averse, low cost, low bid/ask.

VWAP is used when it is not urgent.

wait i meant IS not vwap… sorry for the mistake.