Jump to content

Evaluating your broker's execution


matts
 Share

Recommended Posts

I know most board members don't trade very large blocks of shares but for those that do, how do you evaluate the execution of your broker?

 

I work for a very small asset manager and we typically give our broker discretionary instructions and he fills the trade within the timeframe we specify (usually by end of day). We also sometimes tell them to fill it electronically throughout the day using vwap. We have 2 brokers but the whole trade goes to one of them so it can't be directly compared. So how would one evaluate which one is better at execution? We sometimes compare our average price to the vwap price for the day, but of course that is pretty meaningless when our instructions are to fill at vwap.

 

Thanks in advance.

 

Matt

Link to comment
Share on other sites

You need tools to compare your execution to the market prices at the time of execution.  A great tool is Trade Cost Analysis (TCA) which would measure execution quality.  It generally comes inherent in many buyside PMS systems or they build out their own.

 

Tks,

S

 

I know most board members don't trade very large blocks of shares but for those that do, how do you evaluate the execution of your broker?

 

I work for a very small asset manager and we typically give our broker discretionary instructions and he fills the trade within the timeframe we specify (usually by end of day). We also sometimes tell them to fill it electronically throughout the day using vwap. We have 2 brokers but the whole trade goes to one of them so it can't be directly compared. So how would one evaluate which one is better at execution? We sometimes compare our average price to the vwap price for the day, but of course that is pretty meaningless when our instructions are to fill at vwap.

 

Thanks in advance.

 

Matt

Link to comment
Share on other sites

I know most board members don't trade very large blocks of shares but for those that do, how do you evaluate the execution of your broker?

 

I work for a very small asset manager and we typically give our broker discretionary instructions and he fills the trade within the timeframe we specify (usually by end of day). We also sometimes tell them to fill it electronically throughout the day using vwap. We have 2 brokers but the whole trade goes to one of them so it can't be directly compared. So how would one evaluate which one is better at execution? We sometimes compare our average price to the vwap price for the day, but of course that is pretty meaningless when our instructions are to fill at vwap.

 

Thanks in advance.

 

Matt

At Interactive Brokers you can evaluate execution based on various criteria such as:

 

* Improvement vs NBBO

* Improvement vs NBBO after 1 minute or 10 minute delay

* Price vs close

* price vs vwap

* price vs daily range

* percentage of order filled

* fillrate/sec

 

Think that with a combination of these metrics you should be able to figure out who is providing the best execution.

Link to comment
Share on other sites

As a sidenote, have you ever considered doing the trading in-house? In my experience most brokers don't add much value for on-exchange trading - especially if you only have small orders. Discretionary instructions are typically interpreted as: ripping the client off as much as you can get away with. Long term you're probably cheaper and easier off opening an IB account.

 

If you have smallish orders in liquid stuff the best option might be to instruct MOO or MOC and compare to the official prints. The easier it is to check your executions, the better your pricing will be.

Link to comment
Share on other sites

“ how do you evaluate the execution of your broker?”

 

“I'm in favor of it.”

 

Good one Gamecock!

 

Reminds me of a commercial that used to run a few years ago that went  - “For years I used a broker and the only thing that got broker was me”

Link to comment
Share on other sites

As a sidenote, have you ever considered doing the trading in-house? In my experience most brokers don't add much value for on-exchange trading - especially if you only have small orders. Discretionary instructions are typically interpreted as: ripping the client off as much as you can get away with. Long term you're probably cheaper and easier off opening an IB account.

 

If you have smallish orders in liquid stuff the best option might be to instruct MOO or MOC and compare to the official prints. The easier it is to check your executions, the better your pricing will be.

 

My general philosophy on this is similar to yours. The firm's feeling is that the traders have a "feel for the market" and can "find liquidity". I'm skeptical, but it's a small first and I'm fairly new so that's why I'm hoping to gather some data instead of just sounding like I'm paranoid or cynical. We are small but large and active enough that we get 1 cent/share execution from the brokers (this is in Canada) whether it goes electronic or worked by a trader.  So it's not a cost issue, more of a question of which broker is doing a better job or if we could do a better job ourselves. If the trade is small relative to volume we'll just send an electronic vwap, but sometimes it can be 3 times average volume and the broker "works" it over a few days so we stay below 20% of volume. That's the general instruction, but we don't have much visibility into what the broker is doing. Just get an average fill price at the end.

 

 

 

Link to comment
Share on other sites

Create an account or sign in to comment

You need to be a member in order to leave a comment

Create an account

Sign up for a new account in our community. It's easy!

Register a new account

Sign in

Already have an account? Sign in here.

Sign In Now
 Share

×
×
  • Create New...