LOS m: Discuss and justify the factors that typically determine the selection of a specific algorithmic trading strategy, including order size, average daily trading volume, bid-ask spread, and the urgency of the order.

Q1. A trade’s volume is a large percentage of average daily trading volume and has high spreads. Which of the following would be the best method of filling the trade?

A)   Placing the trade with a broker.

B)   A simple logical participation strategy based on VWAP.

C)   A simple logical participation percent-of-volume strategy.

Q2. A trade’s volume is a small percentage of average daily trading volume. The trade has low spreads and is urgent. Which of the following would be the best method of filling the trade?

A)   The use of a simple logical participation strategy based on VWAP.

B)   Placing the trade in a crossing system.

C)   The use of an implementation shortfall strategy.

Q3. A trade’s volume is a small percentage of average daily trading volume. The trade has low spreads and is not urgent. Which of the following would be the best method of filling the trade?

A)   The use of a simple logical participation strategy based on VWAP.

B)   Placing the trade in a crossing system.

C)   The use of an implementation shortfall strategy.

Q4. Use the following information to determine how the trades should be placed for the following shares.

A)   ABCD should be traded using a shortfall implementation strategy, LMNO should be placed with a broker, and WXYZ should be traded using a simple logical participation strategy.

B)   ABCD should be traded using a shortfall implementation strategy, LMNO should be traded using a simple logical participation strategy, and WXYZ should be placed with a broker.

C)   ABCD should be traded using a simple logical participation strategy, LMNO should be traded using a shortfall implementation strategy, and WXYZ should be placed with a broker.