The Hidden Cost of Trading
Two of the obvious components of trading cost--commissions and market impact--combined account for only 33 percent of the costs in Nasdaq Stock Market stocks, according to an October report from Celent, "Execution Quality in the Nasdaq Market." Delayed and missed trades, by contrast, account for 67 percent.
In the report, Octavio Marenzi, CEO of the Boston-based research firm, analyzed execution speeds and prices obtained at various market makers and electronic communications networks (ECNs) to determine which market centers provide the lowest overall transaction cost. He also observed that best execution is not an easily definable term, because execution quality can vary by not just the trading venue, but the size of the order and the liquidity of an individual stock.
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