Trading/Implementation

Soon after its founding, L.A. Capital began to develop a trading strategy tailored to its approach to stock selection. This strategy would coincide with the dynamic nature of its model by incorporating live market prices into the trading decision making process. Additionally, control over the entire trade process, from order submission through trade execution, would be facilitated along with an enhanced ability to monitor intraday brokerage execution. Combining proprietary software development and live market prices, L.A. Capital has developed a trading algorithm that creates highly liquid, risk controlled, program trades or “waves.” Once a program or “wave” is identified for trading, orders are electronically communicated via FIX (Financial Information eXchange) protocol for rapid execution by the firm’s approved brokerage relationships.

Prior to the creation and placement of program orders, the trading team rigorously analyzes trade lists for difficult and expensive trades. Specific buy positions may be excluded from purchase if the associated trading costs are determined to be excessive. These exclusions will vary depending upon client benchmarks and customized account parameters, but their exclusion is easily incorporated, and substitutions readily identified, in the optimization process.

Turnover is minimized since there is cost associated with trading client accounts. On average, client portfolios have a cost budget of 60% per year which translates to 5% turnover per month. The firm is comfortable that client performance objectives can be met at these turnover levels based upon historic simulations, trading cost analysis and trading experience.

In 2004, L.A. Capital fully implemented its wave optimization trading algorithms. This dynamic trading strategy has enhanced the trading process in several ways. First, program orders are opportunistically sent to the market when waves can be traded at a favorable price. Second, only a portion of the total program order is ever exposed to the market with the remainder hidden until favorable execution can be achieved. Finally, trading is efficiently spread throughout the month thereby significantly reducing market impact costs.