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QOTW (Nov 22nd 2016): What is the cost of extending an order by a day?

What is the cost of extending an order by a day?

 

Chart 1: Average peer cost for 1 & 2 day horizons across major markets

 

Chart 2:  Peer cost for 2 day orders attributed to first and second day trading across countries

  • The tradeoff between cost and risk is one every trader must rationalize for larger orders – finishing the order in one day might result in high impact cost, but extending the order by an extra day can be risky. This week we looked at trading costs for orders in our Peer Universe with relative size between 30 and 50% of MDV, completed within 2 days of order creation.
  • In markets other than the US, costs for orders traded over 2 days are roughly two times the costs for 1-day orders, and second-day costs are generally higher.
  • Enough liquidity to complete an order of this size isn’t always available on the day 1, but it’s worth thinking about the potential benefit of incurring a little additional impact, and taking advantage of liquidity opportunities like closing auctions.

The ITG Peer Group Database contains order-level information from approximately 180 buy-side institutions. The trading horizon is based on trading days.

  • DTC 1 day : orders filled on the same day as the release date.
  • DTC 2 day : orders filled within 2 days from the release date.
  • First day : subset of trades completed on the same day as the release date in DTC 2-day orders.
  • Second day : subset of trades completed on the next trading day to the release date in DTC 2-day orders.

The trading costs are for orders within 30 – 50% 21-day median daily dollar volume, traded between the first and second quarter of 2016 (Peer Group Databases as of Oct. 10th 2016). Implementation shortfall costs are measured relative to the release to the desk and are expressed in basis points.

Refer to ITG Peer Analytics for information available on ITG Peer Group Analytics.

You may have a question or want to share your view with others in our community, please join the Incubator community and submit your entry or send us an email

 

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