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Very nice. It's great you have found something that works for you.
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- Trade what you see. Invest in what you believe -
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Let's hope she knows the difference between VWAP and VWMA then...
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- Trade what you see. Invest in what you believe -
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I went to visit my cousin a few weeks ago and he is a senior sell side trader at a major financial institution. His job is to buy shares that fund managers want to have in their portfolios and to get the best price. No I don't know why it's called sell.side either?!
I asked him about VWAP on the individual shares as my understanding was that it was the benchmark to beat. He surprised me by saying that it was certainly a metric but the real comparison tool something which was a completely different calculation based on who knows what. As it's an institution I'm sure it would.be unfathomable but would assume that some of it would be based on underlying market conditions for that day e.g. if market was up 1% that day, the sector was up 1.5% and the stock itself was up 2% then it would have to take all that into account. But I really am guessing!
But I do know that this calculation it was a very different figure to VWAP. As this was individual share trading perhaps this explains the difference? Who knows...
You are not wrong here. There are many moving pieces that establish an individual traders success (and overall the institutions success) and VWAP is an important piece but not the only piece.
A friend of mine is an ex-institution VWAP trader. Whilst I can't divulge detailed specifics of how all these things work (or used to work at his institution), what your cousin could have been referring to are the trading and KPI tools available to them that can be used for liquidity aggregation. This is especially relevant where high volume positions must be hedged as a result of adverse moves in security prices.
What he could be meaning (and I am trying to pick up on some things you referred to) here is that the traders are also measured against their efficiency in maximizing the volume that can be hedged against his/her position. What I mean by that is that they can offset some volume from what might be considered an "expensive" position at the cost of the price that is saved when acquiring "cheaper" positions. This isn't any simple hedge, this is a carefully crafted calculation.
They achieve this by building their position using their own calculated spread using VWAP as the price calculation, remembering at the same time that this type of execution should also have minimal price movement. They never want to been "seen'' accumulating or distributing to give away their positional intent.
This could or it could not be what your cousin was referring too but it is one of a handful of benchmarks.
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- Trade what you see. Invest in what you believe -
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