Effective Trade Execution

Quaderni DSE Working Paper No. 836

30 Pages Posted: 22 Jun 2012

See all articles by Riccardo Cesari

Riccardo Cesari

University of Bologna - Department of Mathematics for Economic and Social Sciences

Massimiliano Marzo

University of Bologna - Department of Economics

Paolo Zagaglia

University of Bologna; Rimini Centre for Economic Analysis

Date Written: June 21, 2012

Abstract

This paper examines the role of algorithmic trading in modern financial markets. Additionally, order types, characteristics, and special features of algorithmic trading are described under the lens provided by the large development of high frequency trading technology. Special order types are examined together with an intuitive description of the implied dynamics of the order book conditional to special orders (iceberg and hidden). The chapter provides an analysis of the transaction costs associated with trading activity and examines the most common trading strategy employed in the market. It also examines optimal execution strategy with the description of the Efficient Trading Frontier. These concepts represent the tools needed to understand the most recent innovations in financial markets and the most recent advances in microstructures research.

Keywords: Order book, price impact, execution strategy, high frequency trading

JEL Classification: G12, G14, G19

Suggested Citation

Cesari, Riccardo and Marzo, Massimiliano and Zagaglia, Paolo, Effective Trade Execution (June 21, 2012). Quaderni DSE Working Paper No. 836. Available at SSRN: https://ssrn.com/abstract=2088800 or http://dx.doi.org/10.2139/ssrn.2088800

Riccardo Cesari (Contact Author)

University of Bologna - Department of Mathematics for Economic and Social Sciences ( email )

viale Filopanti,5
Bologna, Bologna 40126
Italy
0039512094358 (Phone)
0039512094367 (Fax)

Massimiliano Marzo

University of Bologna - Department of Economics ( email )

Strada Maggiore 45
Bologna, 40125
Italy

Paolo Zagaglia

University of Bologna ( email )

Via degli Ariani 1
Ravenna, 48121
Italy

Rimini Centre for Economic Analysis ( email )

Rimini
Italy

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