Man Group proposes new method to reduce trading costs

Man Group PLC, a global investment management firm, has introduced a new methodology aimed at reducing trading costs in fast-paced market environments. The firm's research paper, "How Can We Reduce Costs for Correlated Order Flows?", details a technique named the Expected Future Flow Shortfall (EFFS).

The new approach specifically addresses scenarios where investment decisions, termed metaorders, are correlated. While conventional methods often assess the impact of single transactions, they typically overlook how executing one order can influence the price at which subsequent orders are filled.

The research explains that metaorders are frequently broken down into smaller child orders to manage liquidity. The resulting difference between the execution price and the initial decision price is known as slippage. The EFFS method aims to provide a more accurate estimation of this slippage and its persistent market impact.

Man Group highlights the significance of this development in an era of increasing systematic trading and machine learning-driven investment strategies. These approaches often involve high turnover, making accurate cost measurement and management crucial for profitability.

The EFFS technique offers investors a refined tool for forecasting and minimizing trading expenses, potentially enhancing the returns of investment strategies, particularly those involving substantial trading volumes.