RT Journal Article SR Electronic T1 Balancing Execution Risk and Trading Cost in Portfolio Trading Algorithms JF The Journal of Trading FD Institutional Investor Journals SP 37 OP 43 DO 10.3905/jot.2013.8.4.037 VO 8 IS 4 A1 Jeff Bacidore A1 Di Wu A1 Wenjie Xu YR 2013 UL https://pm-research.com/content/8/4/37.abstract AB 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–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