Expenses incurred in cryptocurrency trading that are influenced by the specific decisions and timing of a trader or an algorithm, extending beyond explicit fees like commissions. These costs often relate to market impact, slippage, and opportunity costs.
Mechanism
Arise from the interaction of a trading order with prevailing market liquidity and other participants. Large orders can move prices, creating implicit costs. These include bid-ask spread crossing, adverse price movements during order execution, and information leakage.
Methodology
Evaluated through pre-trade analysis estimating market depth and potential impact, and post-trade transaction cost analysis (TCA) comparing executed prices against benchmarks. Reducing these costs involves smart order routing, execution algorithms like VWAP or TWAP, and careful selection of trading venues.
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