Principal vs Agency
Principal Bid: A transaction where a broker/dealer provide an investor with guaranteed execution of the trade list at the market prices at a specific point in time. All timing risk is transferred to broker/dealers. Investors are charged a premium for this.
Blind bid: investor provides only trade list statistics. Than broker/dealer defines the price.
Trading Cost | Agency Exec | Principal Bid Transaction |
Commisson | Y | N |
Price Appreciation | Y | N |
Market Impact | Y | N |
Timing Risk | Y | N |
Opportunity Cost | Y | N |
Premium Fee | N | Y |
Known Price | N | Y |
Granteed Fill | N | Y |
Forecastablility | Distribution of cost | Single value estimate |