Assessing the Impact of an ETF Trade

Since the market environment changes on a subsecond basis, it is always difficult to determine the market impact of a particular trade. As markets move throughout the day, these changes inevitably have an impact on liquidity and spreads.

One method that people use to assess potential market impact is the portfolio trading assessment algorithms. These are also sometimes known as pretrade analytics.

These are systems that take the past history of variables, such as volumes and volatility in stocks, ETFs, or derivatives, and attempt to determine what type of liquidity or impact might occur in the future. In many stock executions, these algorithms are very effective. However, they are sometimes lacking in the ...

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