Learn about...

A financial portfolio execution strategy is designed to manage the buying and selling of assets in a portfolio in order to achieve a specific investment objective. When implemented correctly, such a strategy can provide several benefits, such as:

• Improved performance: By automating the execution of trades based on pre-defined rules and criteria, a portfolio execution strategy can help to ensure that trades are executed at the optimal time and price, potentially leading to better returns on investment.

• Reduced risk: By automating the execution of trades, a portfolio execution strategy can help to reduce the risk of human error, such as accidentally entering the wrong trade size or price.

• Increased efficiency: By automating the execution of trades, a portfolio execution strategy can help to reduce the time and effort required to manage a portfolio, allowing the portfolio manager to focus on other tasks.

However, there are also potential problems that can arise when implementing a financial portfolio execution strategy, such as:

• Dependence on technology: If the technology used to implement the portfolio execution strategy experiences a malfunction or outage, the execution of trades may be disrupted, potentially leading to losses.

• Limited flexibility: A portfolio execution strategy that is heavily reliant on automation may not be able to adapt to changes in market conditions or unexpected events, potentially leading to suboptimal performance.

• Lack of human oversight: Automating the execution of trades can also reduce the level of human oversight, which can be risky if the algorithm's parameters are not properly set.

A strategy that could be implemented as a user story might be as follows:

As a portfolio manager, I want to implement an automated portfolio execution strategy that will help me to achieve my investment objectives by buying and selling assets in my portfolio based on predefined rules and criteria.

A) Automation and Triggers:

• I will set up triggers that will automatically execute trades based on certain market conditions, such as when the price of a stock reaches a certain level or when a specific news event occurs.

• I will also use automation to monitor the portfolio and make adjustments as necessary, such as rebalancing the portfolio or adjusting the trade size.

B) Actions and Preferences:

• I will set up my preferences for the types of assets I want to trade, such as stocks, bonds, and derivatives, as well as the specific criteria that must be met before a trade is executed, such as price and volume.

• I will also set up my preferences for the types of orders I want to use, such as market orders, limit orders, and stop loss orders, to ensure that my trades are executed in the most efficient and cost-effective way.

C) Modifications due to a new trigger or human intervention due to market events unseen by a machine:

• I will have a system in place to monitor the market events and news and intervene if necessary.

• I will also have a plan in place to adjust the algorithm's parameters if the algorithm's performance deviates from the expected outcome.

• I will also have an exit plan ready to act upon if the market conditions change and the strategy proves to be unprofitable.

Overall, the key is to have a robust and flexible strategy that can adapt to changing market conditions and unexpected events while being able to execute trades in an efficient and cost-effective manner.