Pre-trade analysis is the process of taking known parameters of a planned trade and determining an execution strategy that will minimize the cost of transacting for a given level of acceptable risk.
The multitude of definitions for best execution and the dangers inherent in placing too much emphasis on a single statistic necessitate the ability to compare agents to a diverse set of benchmarks.
In the attribution phase, the four cost categories are broken down further, turning previously confusing statistics into intuitive measures representing specific aspects of a trade.
For example, application of a transaction cost model helps split Implementation Shortfall into the parts resulting from the size of the order, volatility, or paying to cover the spread.
The final stage of transaction cost analysis involves combining the results of the measurement and attribution to evaluate each agent.
Transaction cost analysis providers will often include regular consulting to help draw conclusions from the data, establish goals to improve performance, and monitor future trading to determine the impact of any changes.