2014 Mock VWAP vs IS

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bigbclub

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Determine the security for which each trade execution tactic is most appropriate. (circle one)

Basically the ans says

VWAP is preferable under the following conditions: low order volume relative to
average daily volume traded, narrow bid-ask
spread, and low urgency to complete the
trade.

The implementation shortfall algorithm is
preferable under the following conditions: low
order volume relative to average daily volume
traded, narrow bid-ask spread, and high
urgency to complete the trade. TORN meets
all of these conditions.

I thought IS is for high order volume avt to daily trade and also the wider bid-ask spread? OR is it becoz low order volume to avg and narrower spread are always good for no matter which tactics???

Thxx
 
yea but how come the ans says IS is preferable under low trade vs average daily?
 
IS - High urgency, any ADV, highest cost, preferred in lowest spread
VWAP - Low urgency, high ADV, medium cost, preferred in medium spread
Opportunistic/Broker/ECN - Low urgency, low ADV, lowest cost, preferred in high spread
 
google “Almgren Chriss vs VWAP” the cfai text doesn’t really explain things properly.
 
It’s just the ticker symbol of the trade in question I’m pretty sure.
 
IHateMyLIFO wrote:
IS is higher cost than Broker/ECN?
And what is TORN??
Click to expand...
Yes, because it is usually more urgent and done for large orders, so the market impact will likely be high, not to mention the costs for setting up the algorithim, seems the most complex.
ECNs usually have the lowest spreads since they pair up order books, brokers can be cost efficent by reducing market impact from breaking down trades, since that’s their job.
Correct me if I’m wrong.
 
ECN should by definition have a zero spread. since the orders are ‘crossed’ at identical prices. but no guarantee of execution.
VWAP should be quite cheap, but there is no link back to the decision price.
Broker execution is the highest cost since they have to call around to find a buyer and risks information leakage?
IS is an algo just like VWAP but has high market impact (balanced vs urgency)
 
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