@article {Bacidore37, author = {Jeff Bacidore and Di Wu and Wenjie Xu}, title = {Balancing Execution Risk and Trading Cost in Portfolio Trading Algorithms}, volume = {8}, number = {4}, pages = {37--43}, year = {2013}, doi = {10.3905/jot.2013.8.4.037}, publisher = {Institutional Investor Journals Umbrella}, abstract = {In this article, we discuss the balance between risk and cost in the context of portfolio trading algorithms. We provide examples of how trading a basket in a coordinated manner can lead to more efficient execution than trading each stock independently. Specifically, by trading buy and sell orders in a synchronized way, advanced algorithms can execute more passively, reducing cost without increasing risk. We discuss how this cost{\textendash}risk trade-off can be achieved via an optimization approach, even when additional constraints such as cash- or beta-neutrality are applied. Finally, we address the importance of incorporating intraday variation in cost and risk when formulating an optimal algorithmic trading strategy.TOPICS: Quantitative methods, portfolio construction}, issn = {1559-3967}, URL = {https://jot.pm-research.com/content/8/4/37}, eprint = {https://jot.pm-research.com/content/8/4/37.full.pdf}, journal = {The Journal of Trading (Retired)} }