Arrival price
The mid-quote when an order reaches the trader. The natural benchmark for urgent orders, because every price move from that moment counts against the execution.
Where you will meet it
Arrival price appears in 6 learning outcomes on the CFA syllabus. A few of them:
- Contrast the reference prices used to judge trade execution
“Pre-trade benchmarks are known before trading starts: the arrival price, the mid-quote when the order reaches the trader, suits urgent orders and separates delay cost from execution cost within implementation shortfall, which is itself measured from the decision price, while the previous close is sometimes used for index-related trades.”
- Explain how implementation shortfall measures the cost of trading
“A trap is using the arrival price instead of the decision price.”
- Propose a trading strategy suited to given facts and defend the choice
“High urgency or fast alpha: trade aggressively with an arrival price benchmark and accept impact.”
- Explain what usually decides which class of trading algorithm is chosen
“The main classes are schedule-based algorithms (VWAP, TWAP and percentage of volume), arrival price or implementation shortfall algorithms, liquidity-seeking algorithms that search lit and dark venues, and algorithms that target the close.”
Practise it
Practise arrival price until it is automatic: questions that explain every wrong option.
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