Aggressive trading strategies

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For instance, if the equity component only consists of blue-chip stocks , it would be considered less risky than if the portfolio only held small-capitalization stocks. Yet another aspect of an aggressive investment strategy has to do with allocation.

A strategy that simply divided all available money equally into 20 different stocks could be a very aggressive strategy, but dividing all money equally into just 5 different stocks would be more aggressive still. Aggressive Investment strategies may also include a high turnover strategy, seeking to chase stocks that show high relative performance in a short time period.

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The high turnover may create higher returns, but could also drive higher transaction costs, thus increasing the risk of poor performance. More rebalancing would also be required to bring portfolio allocations back to their target levels. Volatility of the assets could lead allocations to deviate significantly from their original weights. This extra work also drives higher fees as the portfolio manager may require more staff to manage all such positions. Recent years have seen significant pushback against active investing strategies.

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Many investors have pulled their assets out of hedge funds , for example, due to those managers' underperformance. Instead, some have chosen to place their money with passive managers. These managers adhere to investing styles that often employ managing index funds for strategic rotation. Automated Investing.

AGGRESSIVE STRATEGIES

Portfolio Management. Portfolio Construction.

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Personal Finance. Your Practice. Popular Courses. Investing Portfolio Management. What is an Aggressive Investment Strategy? Key Takeaway Aggressive investing accepts more risk in pursuit of greater return. Aggressive portfolio management may achieve its aims through one or more of many strategies including asset selection and asset allocation.

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Investor trends after showed a preference away from aggressive strategies and active management and towards passive index investing. Compare Accounts. The offers that appear in this table are from partnerships from which Investopedia receives compensation. Given the effect of market conditions on execution strategy, the unprecedented rise in market volatility and widening of spreads that we saw in March as a result of the impact of Covid 19, did see a greater reliance on the use of algos, says Barzykin.

So besides lack of liquidity for larger order sizes, this effect could also explain significant increase in algo execution. For example, it monitors fill rates by looking at the percentage of orders that have been filled, based on the total number submitted. It also monitors round trip times and market impact. What remains to be seen is whether buy-side traders believe that an algo is the best means by which to make the decision on how passive or aggressive a trade should be.

The global asset manager Allianz Global Investors uses a diverse set of execution strategies that cover both passive and aggressive trading, says Andreas Anschperger, director, European head of foreign exchange trading. He does not believe in the binary descriptions of passive versus aggressive execution and instead sees execution strategy as a human judgement on several factors.

There are factors that influence how traders make those judgements and trade-offs, says Anschperger. These include pre and post-trade analytics and the related transaction cost analysis and respecting various liquidity pools in various currency pairs. When it comes to a new generation of algos being engineered to fine-tune passive vs aggressive execution strategies, Anschperger says that it is the widely discussed search for intelligent algos making dynamically use of above mentioned interest and market conditions with the dominant factors such as pools of liquidity, internalisation and dynamic adaptation to changing market volatility.

Passive order execution is where a participant adds liquidity to the market while trying to fill an order, with the objective to only trade when someone has an offsetting interest, says Ronald Lagarde, expert trader FX, APG Asset Management.

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In contrast, aggressive order execution is where a participant takes liquidity from the market, buying and selling at market prices and looking for immediate execution. But when it comes to FX algos, there is a miscomprehension that passive versus aggressive relates to how fast or slow an algo works, says Lagarde. Our main goal is to lower market impact, while minimising opportunity risk.

The main influence on the decision to use passive versus aggressive is the urgency of the trade, says Lagarde.


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Next to this there are the market conditions like costs and volatility. If there was high urgency, we would not use passive algos because that creates opportunity cost. But if you have low urgency, we would use passive strategies unless we have strong reasons not too. We have been using passive strategies first through leaving bids and offers with banks, but also directly on ECNs, although this was manual and cumbersome. If you have a large order and you trade with high urgency, you will incur high market impact and it will be self-defeating.

It is really about market impact versus opportunity risk. Over the last five months, since the outbreak of the Covid 19 pandemic, market factors have become a much greater influence, says Lagarde.