Pre-trade analysis

Implementation shortfall

Recent surveys indicate some 75% of investment managers, particularly hedge funds, prefer implementation shortfall to other execution benchmarks such as VWAP. Implementation shortfall is also the basis for the Russell T Standard for transition management. A clear guide to the analysis of transaction costs, and implementation shortfall, can be found at the Investment Management Association website.

From the brokers' perspective, the shortfall is the simple difference between the price when the order was received (the arrival price) and the average price of execution. This difference comes with an inbuilt penalty in that the arrival price is most often defined as the mid price, which is not tradeable, rather than the prevalent bid or ask. To that must be added the principal costs of timing executions and the impact on the market price of trading the order quantity.


The online calculator provides an estimate of market impact and price movement based on the arrival price and characteristics of the symbol to be traded. This calculator requires the Java plug-in.