I’m a bit confused how it is liquidity at any cost and not information motivated trader or liquidity motivated trader.
Craig asks Ramsey to comment on trading tactics at his previous firm. Ramsey replies that trading tactics were directly related to trade motivation, which enabled him to trade significant positions in stocks the firm had considerable information about. Accordingly, these trades were often expensive in terms of commissions and price concessions in order to achieve timely execution.
Q. The trading tactics at Ramsey’s previous firm most likely focused on:
costs not being important.
the need for a trustworthy agent.
liquidity at any cost.
Solution
C is correct. Liquidity at any cost is a trading tactic for immediate execution in institutional block size. Liquidity at any cost tactics are typically used by information-motivated traders who require timely execution. Weaknesses of liquidity at any cost include high costs, such as commissions and price concessions, related to market impact.
A is incorrect because the costs-are-not-important trading focus relates to certainty of execution at a competitive market-determined price. Timing of trade execution is not as important relative to the liquidity-at-any-cost trading focus. Market orders are typically used, which work for most mixes of investment strategies in which it is difficult to assign pure information, value, or liquidity motivation. Liquidity motivated traders (not to be confused with information-motivated traders) who are seeking competitive market driven prices often have a costs-are-not-important trading focus.
B is incorrect because the needs-trustworthy-agent trading focus relates to large scale trades in which price vs. value considerations are more important than time of execution. The needs-trustworthy-agent trading focus is typically used by value motivated traders. Immediate execution is not typically of primary importance.
It’s answer isnt informational motivated trader because that’s not one of the choices. It doesnt mean that it couldnt also be informationally motivated.
In the explanation of answer C; it states that “Liquidity at any cost tactics are typically used by information-motivated traders who require timely execution”.
For the previous question ahead that one in the CAFI website, it states that this is not an information motivated trader.
Please find below the question and the inquiry in the highlighted section.
Craig asks Ramsey to comment on trading tactics at his previous firm. Ramsey replies that trading tactics were directly related to trade motivation, which enabled him to trade significant positions in stocks the firm had considerable information about. Accordingly, these trades were often expensive in terms of commissions and price concessions in order to achieve timely execution.
Q. Based on Craig’s statement about types of traders and preferred order types, Placid’s preference is most likely a trader that is:
value motivated.
information motivated.
liquidity motivated.
Solution
A is correct. Value-motivated traders trade only when the price moves into their value range. Their motivation is to take advantage of perceived valuation errors. With respect to trade execution, their preference is price (versus time). They often use limit orders.
B is incorrect because Information-motivated traders believe that they need to trade immediately in order to best take advantage of an information edge. Information traders often use market orders. With respect to trade execution, their preference is time (vs. price).
C is incorrect because liquidity-motivated traders often use market orders because their primary motivation is to invest/sell within a short (minutes to hours) timeframe. With respect to trade execution, their preference is time (vs. price).
I’m also not seeing the problem? They’re both saying the same thing. Information motivated traders need to trade quickly to capitalize on their information. Therefore they care about liquidity at any cost because the profit of their knowledge will likely outweigh the trading costs. Market orders are essentially liquidity at any cost because you’re selling at next available bid price, whatever that might be.
I understand that there is no contradiction between the two. My problem is that in the earlier question that I have posted it states that it is not an information-motivated trader, however it is value motivated.
Then in the following question, it states that it is a liquidity at any cost tactic.
So my question is why we did not select answer B “inofmration-motivated trader” in the first place.
One question asks about tactics from the previous firm , and one question asks about Placid’s preferences. The vignette is not fully written so its hard help you other then to say the questions are asking about motivations of two separate people/entities.
I’m going on memory here, but I recall there’s another paragraph in that question that discuss a trader who only trades when the price falls in their range - a value motivated trader. Go back and reread the question, I think you may be missing something.
