Trading Costs and Electronic Markets

Free CFA Level III: Private Markets lesson in Portfolio Construction. 34 min read, ~5,151 words.

Explicit costs (commissions, fees, taxes) are visible; implicit costs (spread, market impact, delay, opportunity cost) are far larger. Implementation shortfall measures total cost from decision to execution (Paper portfolio return minus Actual portfolio return), the gap between the paper and the actual portfolio. Effective spread = 2 x execution price...