Finery Markets Pulse: data-driven tool to assess your trading costs
October 17, 2022
Finery Markets fully supports financial industry efforts to provide cost transparency. Our clients are entitled to know what the real trading costs are. For this reason we created Finery Markets Pulse, an easy-to-use analytical tool for analysis of effective spreads across the leading trading venues.
But first let’s start with understanding the costs — implicit and explicit.
Explicit costs are direct costs typically known in advance of trading, so they are measurable and simple to quantify. Exchange fees, broker fees and any taxes & levies are examples of explicit costs.
Implicit costs are less so directly observable. The most basic component to implicit costs is the bid-ask spread, the difference between the bid and the ask price visible in the order book of a trading venue. In other words, bid-ask spread is what a buyer will pay and what the seller will receive for a particular asset at a given point of time. It’s also important to keep in mind factors which affect implicit costs, i.e.
Size of a transaction. The larger orders may easily exceed top level volumes available in the order book, and thus affect not only the effective bid-ask spread, but the whole order book. Market impact refers to the extent to which a market participant can move the price of an asset while buying or selling. A large trade in a short period of time will result in large market impact, adversely moving market price and increasing trading costs.
The timing of execution. The order book may literally change thousands of times per second, so it changes the spread. As such, the period between the time of your order and trade confirmation impacts the effective spread.
Changes of an asset price over the course of trading. One approach to reduce market impact is to slow down trading, slicing the order by dividing it into smaller lots. However, this increases the time over which the order is in the market and exposes the market player to potentially adverse price moves, also affecting effective spreads.
While explicit transaction costs receive the most scrutiny by market players, the implicit costs are those which will have the greatest impact on trading execution quality and net returns.
How does Finery Markets Pulse help?
Step 1. Choose a trading pair (e.g. BTC/EUR)
Step 2. Choose a size of your expected trade (0.1, 1 or 10 BTC)
Step 3. Choose your monthly trading volumes at the exchange you trade on to identify indicative exchange fees.
Finery Market Pulse shows the comparable effective spread across the leading trading venues for the defined trade for the last 24 hours, one week or one month, taking into account your implicit and explicit costs.
Compare your costs and determine the execution strategy that will maximize your performance.
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