hey guys, I suggest to gather the factors that would make (or not) each trading strategy sucessful: For example, VWAP not suitable for high urgent, high size % AVP… and implementation shortfall not suitable for low urgent trades… Thanks, M.
Can someone list the Adv, Disadv of IS vs VWAP and when to use each one of the strategy.
Directly from my notes: Advantages of Volume Weighted Average Price (VWAP): - Easily understood - Computationally simple - Can be applied quickly to enhance trade decisions - Best for small trades in nontrending mkts - Better than using opening price b/c can be gamed even more Disadvantages of VWAP: - Not informative for large trades - Does not evaluate delayed/unfilled orders - Can be gamed by traders - Does not account for market movements or trade vol Advantages of Implementation Shortfall: - Most accurate and cannot be gamed - PMs can see cost of implementing their idea - Demonstrates tradeoff btwn quick execution and market impact - Decomposes and identifies costs - Can be used in optimizer to minimize trading costs/maximize performance Disadvantages of IS: - May be unfamiliar to traders - Requires considerable data and analysis
Dis - VWAP can be gamed
VWAP - Advantages: easy to compute and understand. Appropriate for small trades in nontrending markets Disadvantages: Can be gamed, doesn’t evaluate delayed or unfilled orders. Doesn’t account for trade volume. IS - Advantages: Not subject to gaming, identifies costs, portfolio managers can see the costs of their trades. Disadvantages: Needs much data and traders may be unfamiliar with it.
Use: VWAP when trade size is small and can be filled over a period of time. IS when there is high urgency. A broker when the size is relatively large with a large spread.
Thanks, we crushed this thing…
I think I am falling in love with Aimee because she is going to be in top 1% this year…
thanks guys!
Easy pup, I just take great notes 
I still haven’t cracked 70 on a practice test yet (although I also haven’t taken one in almost two weeks!)
Aimee, you are on fire lately. What are you on these days? Any secret recipe?
Not really… just frequent naps and an obscene amount of Dr Pepper/Pepsi Max to keep me going!