Price
Book size
Best Ask Price
Best Bid Price
$92.01
$92.04
...
...
$92.10
$92.13
Spread
Naive portfolio managers place market orders for execution.
You are losing money to HFT firms !
For EDV, Vanguard Extended Duration Trs ETF, you would loose 0.2% straight if you place market order.
Lets place a buy market order
$109.89
$110.11
What all passive buyers are willing to pay
What you paid
Bid Side
Ask Side
Order got generated at this point
We would save a lot if we wait and buy at this point
Let us consider buying VTI shares.
A set of rules, encoded in software, which ensures fill at better price.
Price Movement of SPY
In high turnover portfolio management systems, savings by smart execution algorithms are significant.
Let us take a simple case:
Above calculation shows 8% increment in portfolio returns solely from execution algorithm savings.
Let us take a simple case:
Savings could be even more !!
In previous analysis we did not incorporate market micro-structure adverse effects when executing large orders naively.
How much work it seems to need :)
How much work it actually needs !
Courtsey: https://sosamelasilva.files.wordpress.com/2012/12/iceberg.jpg
Let us take a simple example to get the idea in.
Market Movement prediction is a data intensive job. Sophisticated AI systems are set up to solve this problem.
One of qplum's algorithms predicting when the price would go up
Starting of prediction duration
End of prediction duration
A red vertical bar means that at that time, price is at a local minima
Price movement for etf VSS shown with blue lines