Basket Trading

May 15, 2012

A Basket Trade is also known as a portfolio trade or a program trade.

  1. It involves a sale of a number of securities together at a time (usually greater than 15)
  2. Usually used by portfolio managers so that the allocation of the portfolio doesn’t change with time
  3. The trade consists of buy/sale of securities in the proportion in which they are present in the portfolio

 

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Order Execution Strategies

May 15, 2012
What are Logical Participation Strategies ? 
Logical Participation strategies are protocols for breaking up the order in chunks for execution over time.
Some simple logical participation strategies are :
  1. Volume Weighted Average Priec (VWAP ) Strategy : It involves breaking up the order over time according to a pre-specified volume profile. The main goal is to match the VWAP for the day. 
  2. Time Weighted Average Price (TWAP) Strategy : It is useful for thinly traded assets whose volume patterns may be erratic. It breaks up the order in proportion to time. If based on past trades, this strategy can be reactive, whereas, if based on dynamic forecasts this strategy can be proactive. 
  3. Percentage of Volume

Common Terminologies

May 15, 2012
  1. Bid :
  2. Ask :
  3. Orderbook :
  4. Bid-Ask Spread :
  5. Effective Spread :
  6. STP (Straight Through Processing)
  7. DMA (Direct Market Access)
  8. SORT (Smart Order Routing)

Difference between Algorithmic Trading and High Frequency Trading

May 15, 2012

Types of Orders – Algorithmic Trading

May 15, 2012
  1. Market Orders is executed promptly in the market at the best price available. Emphasis is on immediate execution and suffers from price uncertainty. 
  2. Limit Orders is executed at the best price in the market only if it satisfies the limit price requirement. Emphasis is on price and suffers from execution uncertainty. 
  3. Market not held order hands the discretion of executing the order in the hands of the broker. He is not required to trade it at any specified time interval or at any specified price. 
  4. Market on open order is to be executed at the opening of the market. 
  5. Market on close order is to be executed at the time of closing of the market. 
  6. Stop Loss orders
  7. Fill or Kill orders