Abstract
This chapter discusses the various types of risk and uncertainty that could potentially arise during implementation of an investment decision. In particular, we trace the money manager’s investment decision from point of decision through point of implementation (actual purchase or sale of the asset). We discuss the potential risks that could arise, causing the manager to not be able to fully purchase or sell the asset, or what could potentially cause the asset to dramatically change in value. This chapter provides substantial discussion surrounding market impact, execution risk, probability of completing the order, proper selection of trading destination, appropriate utilization of market order versus limit order, and best practices for routing orders to dark pools and other non-transparent trading venues. This chapter provides investors with an underlying framework for managing algorithmic and trading risk.
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