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209624
Spread Reduces Costs of Dealing
Description
Bachelor's degree Trading and Dealing (Liquidity Suppliers) Mind Map on Spread Reduces Costs of Dealing, created by Vhia Rose on 15/09/2013.
No tags specified
liquidity suppliers
trading and dealing
trading and dealing
liquidity suppliers
bachelor's degree
Mind Map by
Vhia Rose
, updated more than 1 year ago
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Created by
Vhia Rose
about 11 years ago
26
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Resource summary
Spread Reduces Costs of Dealing
Order processing costs
Financing for inventory
Wages
Rent
Membership fees
Telecommunications
Clearing and settlement
Accounting
Utilities
Inventory holding costs
Inventories are too low or clients are net buyers
Inventories are too high or clients are net sellers
Expensive to quickly adjust inventory position
Regular turnover desired
Adverse selection costs
Trade is equally likely to occur at bid or ask
No knowledge whether trader is informed or uninformed
Trading occurs between informed and uninformed investors
Kyle's types of traders
Informed traders with perfect info
Problem: Profit maximisation
Uninformed noise traders
Tries to discern trades from informed traders
Single dealer as intermediary
Price adjustment
Well informed
Lower adverse selection costs
Hold larger inventory
Hold longer lived inventory
Earn larger realised spreads
Value traders
Trade when prices diverge significantly from fundamental values
Poorly informed
Turn over positions quickly
Earn smaller realised spreads
Reducing adverse selection costs
Time slicing
Adjust quotes
Buy at ask
Do nothing
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