Transparency and Trading: Measuring Execution Costs in a Dynamic Market
The US equities market executes approximately $330 billion in notional value via 34 million trades a day, and there is virtually no practical way that any trade can be executed effectively without the aid of sophisticated trading and routing technology. How you measure equity execution performance is critically important to improving the performance of trading algorithms. While traditional TCA helps firms understand the overarching price at which orders were filled, venue analysis is the science and math of analyzing the when, where, why and how an order was routed and the impact of each decision on the overall execution of the order. Increasingly, third-party platforms can help firms analyze their brokers’ routing and aid in the analysis and fine-tuning of algorithms. The keystone of the trading improvement process revolves around measurement, and as the ability to accurately timestamp, measure, analyze, improve and remeasure increases, the efficiency and effectiveness of trading algorithms will improve, and trading costs will decline.