Investment Operations

Transaction Cost Analysis

Categories Compliance, Operations

Course Instructor

Course Level

Intermediate

Certification

Certificate

Delivery

Via Zoom

Hours (EST)

9:00 am - 1:00 pm​

Description

Date: TBD

Transaction Cost Analysis (TCA) is the rigorous quantitative study of the financial cost of transacting in securities markets. TCA can be applied post-trade, for individual trades or groups of trades, and can be analyzed pre-trade, based on historical data and complex mathematical frameworks to predict the expected cost of transacting as well as the variability of that cost. In modern trading markets, substantial pricing and volume data allow investors and traders to assess how costly historical transactions have been, how effective trading operations have been at achieving investment and trading objectives, and what strategies can be adopted to better achieve these objectives going forward. The objective of this course is to:

  • Review all sources of trading costs
  • Understand market impact and what causes it
  • Describe the goals of algorithmic trading and transaction cost analysis
  • Evaluate and critique different methods and metrics for computing TCA
  • Discuss the difference between pre-trade and post-trade analysis
  • Understand what factors contribute to optimal trading for cost minimization
  • Explore relevant considerations for TCA in different asset classes
  • Review sample TCA reports and identify key takeaways

Prerequisite: Electronic and Algorithmic Trading course or equivalent work experience

Agenda

Day 1

Understanding Costs of Trading (Implicit and Explicit)

  1. Market impact: temporary vs. permanent
  2. Information Asymmetry and Adverse Selection relative to “informed order flow”
  3. Efficient Frontier of trade execution

Transaction Cost Analysis Overview

  1. Definition, decomposition, and purpose
  2. Illustration: Anatomy of the Life of a Trade
    • Delay Cost
    • Bid-Ask Spread Cost
    • Temporary Impact
    • Permanent Impact
    • Opportunity Cost
  3. Pre-Trade vs. Post-Trade TCA

Different Cost Metrics

  1. Cost relative to VWAP (volume-weighted average price)
  2. Gold Standard: IS (implementation shortfall)

Day 2

Factors that Affect Optimal Performance

  1. Size/Volume
  2. Liquidity
  3. Volatility
  4. Informed vs. Uninformed Trading
  5. Aggressive vs. Passive Trading Strategies

TCA by Asset Class

  1. Pre-Trade vs. Post-Trade Modeling
  2. Which factors are most important for driving TCA metrics in different asset classes?

TCA in Action

  1. Calculating TCA on Example Trades
  2. Example TCA Reports

Summary & Questions

In-House Training

Custom Training can help you achieve your corporate training goals while staying on budget and focusing the content on the needs of your group. Email your questions regarding corporate training to training@investmentoperations.net.

2024 Training Calendar

Training Catalogue

Course Instructor

Course Level

Intermediate

Certification

Certificate

Delivery

Via Zoom

Hours (EST)

9:00 am - 1:00 pm​

Description

Date: TBD

Transaction Cost Analysis (TCA) is the rigorous quantitative study of the financial cost of transacting in securities markets. TCA can be applied post-trade, for individual trades or groups of trades, and can be analyzed pre-trade, based on historical data and complex mathematical frameworks to predict the expected cost of transacting as well as the variability of that cost. In modern trading markets, substantial pricing and volume data allow investors and traders to assess how costly historical transactions have been, how effective trading operations have been at achieving investment and trading objectives, and what strategies can be adopted to better achieve these objectives going forward. The objective of this course is to:

  • Review all sources of trading costs
  • Understand market impact and what causes it
  • Describe the goals of algorithmic trading and transaction cost analysis
  • Evaluate and critique different methods and metrics for computing TCA
  • Discuss the difference between pre-trade and post-trade analysis
  • Understand what factors contribute to optimal trading for cost minimization
  • Explore relevant considerations for TCA in different asset classes
  • Review sample TCA reports and identify key takeaways

Prerequisite: Electronic and Algorithmic Trading course or equivalent work experience

Agenda

Day 1

Understanding Costs of Trading (Implicit and Explicit)

  1. Market impact: temporary vs. permanent
  2. Information Asymmetry and Adverse Selection relative to “informed order flow”
  3. Efficient Frontier of trade execution

Transaction Cost Analysis Overview

  1. Definition, decomposition, and purpose
  2. Illustration: Anatomy of the Life of a Trade
    • Delay Cost
    • Bid-Ask Spread Cost
    • Temporary Impact
    • Permanent Impact
    • Opportunity Cost
  3. Pre-Trade vs. Post-Trade TCA

Different Cost Metrics

  1. Cost relative to VWAP (volume-weighted average price)
  2. Gold Standard: IS (implementation shortfall)

Day 2

Factors that Affect Optimal Performance

  1. Size/Volume
  2. Liquidity
  3. Volatility
  4. Informed vs. Uninformed Trading
  5. Aggressive vs. Passive Trading Strategies

TCA by Asset Class

  1. Pre-Trade vs. Post-Trade Modeling
  2. Which factors are most important for driving TCA metrics in different asset classes?

TCA in Action

  1. Calculating TCA on Example Trades
  2. Example TCA Reports

Summary & Questions

In-House Training

Custom Training can help you achieve your corporate training goals while staying on budget and focusing the content on the needs of your group. Email your questions regarding corporate training to training@investmentoperations.net.

2024 Training Calendar

Training Catalogue

Want to receive push notifications for all major on-site activities?