The Average Cost Of A Long Position Of 100000 Tnx Shares

1356 Words Oct 11th, 2015 6 Pages
Question 1:
As table one shows that, the average cost of my trades to accumulate a long position of 100000 TNX shares is 2.92 dollar per share lower than the market average cost (VWAP) during the trading period. Volume weighted average price was applied in this scenario as a benchmark for cost measurement. Accordingly, the market VWAP can be calculated by the formula below:

Obviously, the most important variables which influence the market VWAP outcome included the volume traded at different price level. For individual traders, market timing and market impact are two significant factors that affect trading cost. Given the TNX share market is highly liquid, we should basically focus on the timing of execution. Under the circumstances, for the purpose of keeping close to the market VWAP, the optimal strategy is executing transactions with market orders at the same prices and with same proportional shifts in volume as the market over the transaction period. Moreover, forecasting the average trading volume of TNX is inevitable. Consequently, I should have applied the above strategy by gradually purchasing TNX shares following the average intra-day trading volume data which was available.

Question 2:
As a trader for a brokerage firm, one should execute transaction for or on behalf of clients. Using VWAP as a benchmark to measure the transaction performance is not always appropriate. Different nature and goals of investors may lead to different reactions to VWAP strategy.…

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