execution costs

Four most important execution costs in increasing order of estimation reliability:

1. Opportunity costs (most difficult of these four costs to estimate reliably)
2. Market impact
3. Commissions (generally quite explicit)
4. Fees and taxes (generally quite explicit)

Indicated approach that is aimed at reducing execution costs:

execution costs

	Opportunity costs	Disadvantage	Advantage	Execution cost (*)	Best execution?
Agency trade					Yes
Internal crossing			Expected minimized costs		No
External crossing			Anonimity	Minimized
Principal trade	Minimized		Immediacy
Use of futures	Decreased	Basis risk

(*) Commissions and Fees