27 July 2012
White Paper: The Difficulty of Trading “Ultra-Liquid” Stocks
The shortfall of an order is affected by several well known characteristics—the order’s participation rate, the stock’s volatility and bid-ask spread. But another important factor is how often it is necessary to cross the bid-ask spread. In order to minimize execution costs, many traders use low-participation-rate algorithms allowing them to avoid crossing the spread often, thereby reducing the spread costs associated with taking liquidity.
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