You've Got The Alpha, Now You Need To Execute

Learn optimal execution policies to maximize the alpha you've worked so hard to get

Introduction

Most of us work really hard on the alpha part of the investment process. It’s the “sexiest” part and we all love to feel like biggus brainus producing PnL charts that go diagonally from left to right with no bumps. Unfortunately, translating that perfect PnL chart into actual dollars earned is pretty difficult once you account for real life trading frictions. We have fees we need to pay to the exchange, slippage from being front-ran and bid-ask spread if we have no patience.

Large firms often hire large execution trading teams that decide on trading policies. These policies decide whether to make or take, and when quoting, whether to wait and leave the quote as-is, or refresh their quotes and lose time priority.

You’re not a large firm, so you are probably thinking to yourself, should I use limit or market orders? Should I be aggressive or passive? When do I switch between them? This article is meant to address these questions.