Study Notes for CFA® Level II – Alternative Investments – offered by AnalystPrep
Reading 35: Introduction to Commodities and Commodity Derivatives -a. Compare characteristics of commodity sectors; -b. Compare the life cycle of commodity sectors from production through trading or consumption; -c. Contrast the valuation of commodities with the valuation of equities and…
Real-time Surveillance of Markets
Several markets use real-time surveillance to detect market malpractices and give quick remedies. The market malpractices that can be detected by real-time monitoring are: Front running: This is also known as forward trading. It is a situation where a trader…
Electronic Trading Risks
The risks associated with automated trading are: High-frequency traders’ arms race: The competition among the high-frequency traders has made trading increasingly expensive. Therefore, several HFTs quit the market when they cannot compete effectively. Systemic risks: A systemic risk is the…
Latency
Latency is the delay between the occurrence of an event and a subsequent event. It can also be defined as any delay in time between a request and a response. Advantages of Low-latency Traders Adequate productivity: When there is a…
Electronic Trading System Facilities
Features of Electronic Trading Systems The mushrooming of electronic trading systems has forced buy-side traders, proprietary traders, and brokers to adopt the usage of new electronic trading tools. We discuss a few of the features of electronic trading in this…
Types of Electronic Traders
Electronic trading strategies are most effective because they act on information extremely fast. They have been adopted by proprietary traders, buy-side traders, and the automated brokers that serve the systems. Electronic proprietary traders consist of high-frequency and low-latency traders. The…
Market Fragmentation
Market fragmentation implies that a market is composed of several heterogeneous segments. Fragmentation in a market can be caused by several market needs, reduced levels of innovation, and economies of scale. Market fragmentation enables businesses to reach the right consumers….
Electronic Trading Systems
The electronic trading system involves the use of modern information technologies in business. Most large markets use electronic devices in their transactions to enhance efficiency and sufficiency. In such markets, traders and exchange systems are interdependent. While traders need fast…
Implementation Shortfall
The implementation shortfall approach involves taking the difference between the prevailing price and the final execution price when a buy or sell decision is made concerning security. This technique solves the challenges of the effective spread method. It consists of…
Implicit Costs Estimates
Trade prices are compared to the benchmark price to compute the implicit transaction costs. The benchmarks used are the effective spread, implementation shortfall, and VWAP techniques of cost evaluation. Effective Spread The effective spread is a measure of trading costs….
