Financial Education

Crossing trades internally is one way a fund manager may seek to reduce execution costs. Internal crosses occur when two of the manager’s clients take opposite positions in a trade.  This can reduce direct execution costs and eliminates any market impact.

Few managers use this technique because it is rare to have two clients that would want to take opposing positions. It is also critical to ensure that neither client benefits from the trade at the other’s expense. This can be done by using a market-based execution price.

For more information, see all articles on: Active Management, Investing in Stocks, Portfolio Management, Valuation

See also:

Crossing Trades Externally

Continuous Markets

Using VWAP to Measure Transaction Costs

Algorithmic Trading Methods

Volume Weighted Average Price (VWAP)