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Effective Trade Execution

Author

Listed:
  • Cesari, Riccardo
  • Marzo, Massimiliano
  • Zagaglia, Paolo

Abstract

This paper examines the role of algorithmic trading in modern financial markets. Additionally, order types, characteristics, and special features of algorithmic trading are described under the lens provided by the large development of high frequency trading technology. Special order types are examined together with an intuitive description of the implied dynamics of the order book conditional to special orders (iceberg and hidden). The chapter provides an analysis of the transaction costs associated with trading activity and examines the most common trading strategy employed in the market. It also examines optimal execution strategy with the description of the Efficient Trading Frontier. These concepts represent the tools needed to understand the most recent innovations in financial markets and the most recent advances in microstructures research.

Suggested Citation

  • Cesari, Riccardo & Marzo, Massimiliano & Zagaglia, Paolo, 2012. "Effective Trade Execution," MPRA Paper 39619, University Library of Munich, Germany.
    • Handle: RePEc:pra:mprapa:39619
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    File URL: https://mpra.ub.uni-muenchen.de/39619/1/MPRA_paper_39619.pdf
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    References listed on IDEAS

    as
    1. Albert J. Menkveld & Boyan Jovanovic, 2010. "Middlemen in Limit Order Markets," 2010 Meeting Papers 955, Society for Economic Dynamics.
    2. Jim Gatheral & Alexander Schied, 2011. "Optimal Trade Execution Under Geometric Brownian Motion In The Almgren And Chriss Framework," International Journal of Theoretical and Applied Finance (IJTAF), World Scientific Publishing Co. Pte. Ltd., vol. 14(03), pages 353-368.
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    Cited by:

    1. Luyao Zhang & Tianyu Wu & Saad Lahrichi & Carlos-Gustavo Salas-Flores & Jiayi Li, 2022. "A Data Science Pipeline for Algorithmic Trading: A Comparative Study of Applications for Finance and Cryptoeconomics," Papers 2206.14932, arXiv.org.

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    More about this item

    Keywords

    order book; price impact; execution strategy; high frequency trading;
    All these keywords.

    JEL classification:

    • G14 - Financial Economics - - General Financial Markets - - - Information and Market Efficiency; Event Studies; Insider Trading
    • G12 - Financial Economics - - General Financial Markets - - - Asset Pricing; Trading Volume; Bond Interest Rates
    • G19 - Financial Economics - - General Financial Markets - - - Other

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