Market Comparison
The following sections compare and contrast trading within the following markets: Equities. Fixed income. Exchange-traded derivatives (options and futures). Off-exchange (OTC) derivatives. Spot currencies. Equities Equities offer the most robust and viable platform for electronic trading. Equities are the…
Trade Execution
Algorithmic trading is the practice of using programmed strategies to electronically trade orders. This practice is common in most equity, foreign exchange, and exchange-traded derivative markets. As with fixed income, algorithmic execution is mostly limited to trading highly liquid government…
Trading Strategies
The goal of any trade is to find a balance between the cost of execution and other risks with the benefits expected from executing the trade. Various trades have differing desired outcomes (i.e., making a quick profit vs. rebalancing a…
Benchmarks for Trade Execution
Reference prices, also called price benchmarks, are specified prices, price-based calculations, or price targets used to select and execute a trade strategy. Traders use reference prices to determine the effectiveness of their trades, both past and proposed. According to the…
Trading Strategies and Strategy Selection
Trade strategy inputs refer to the characteristics that inform the particular trade strategy chosen. The goal is to maximize the benefit of the trade, taking into consideration costs and risks. The following are the main inputs used in trade strategy…
Motivations to Trade
Portfolios must be created and maintained to reflect the risk/return characteristics of the ultimate beneficiaries. This section discusses the different reasons why managers need to trade. While active managers have more motivation to trade, even passive managers will need to…
Balance Sheet Management of Banks and Insurers
Banking and insurance companies have perpetual time horizons. Strategically, their goal is to maximize net present value to capital holders; tactically, this may be achieved by liability-driven investing (LDI) over intermediate and shorter horizons. LDI investing involves first focusing on…
Investment Portfolio of a Private DB Plan
Pension Funds Asset allocations for pension funds show very large differences by country. In the same vein, asset allocations of pension funds within a country are often characterized by large differences. There are many factors that contribute to these inter-…
Investment Policy Statement
Pension Investment Objectives To meet pension liabilities, defined benefit plans need to mix investment returns with contributions. The long-term return on pension plan assets must exceed the discount rate typically used by actuaries to value pension liabilities. Defined contribution pension…
Pension Funds and Risk Considerations
Defined benefit plans are giving way to defined contribution plans. However, in some countries, such as Japan and the Netherlands, they are still featured prominently. This Los reviews the main factors that contribute to the risk of a DB plan….
