A $100 million rebalance: separate trading cost from portfolio drag

Freeze a complete starting record

This is an invented cash-notional exercise dated 16 October 2026. It contains no observed securities, market prices, customer orders or actual fills. Set capital to $100 million, allocate 60% to Sleeve A, 30% to Sleeve B and 10% to untraded cash, and trade 20% of each invested sleeve. The weights sum to one. Cash remains in the capital denominator even though it generates no order.

Assume per-session dollar average daily volume of $50 million for A and $5 million for B. Use a two-session window and a volume multiplier of one. The selected participation cap is 10%. The cost equation uses a 1-basis-point fee, a 2-basis-point half spread and an impact coefficient of 20. These are transparent scenario parameters, not market estimates or a broker's quote.

Translate allocation into actual orders

An order equals capital multiplied by sleeve weight and traded fraction. A therefore trades $100 million × 0.60 × 0.20 = $12 million. B trades $6 million. Adding the absolute notionals gives $18 million, or 18% of starting capital. The model does not infer whether these are purchases or sales, net opposing instructions, or solve the financing of the resulting portfolio.

Window volume is per-session dollar ADV multiplied by two sessions. The $100 million denominator for A gives 12% participation; the $10 million denominator for B gives 60%. A single basket average would conceal this difference. A participation figure describes the order relative to the supplied volume scenario; it does not reserve that volume or demonstrate that counterparties will trade.

Reconcile dollars and both basis-point denominators

Cost per traded dollar is 1 + 2 + 20 × square root of participation, expressed in basis points. Using participation as a decimal, A costs 9.92820323 basis points and B costs 18.49193338. Multiplying each order by its cost rate divided by 10,000 gives $11,913.843876 for A and $11,095.160031 for B. The total is $23,009.003907 before display rounding.

Divide that total by $18 million and multiply by 10,000 to obtain 12.78277995 basis points per traded dollar. Divide by $100 million instead to obtain 2.30090039 basis points of portfolio drag. Neither number is a return forecast. A small capital-relative cost can coexist with an expensive individual order because most capital is not traded in this event.

Read the failures before accepting the headline

The 10% participation cap fails for both A and B. The 12-basis-point per-order budget passes for A and fails for B. The test is applied to every traded row; a low-cost sleeve cannot compensate for another sleeve's breach. Under unchanged weights, turnover and liquidity, the combined capital boundary is $16,666,666.67, set by B's participation constraint.

This boundary is conditional arithmetic, not deployable strategy capacity. CFA Institute distinguishes explicit and implicit trading costs, including delay and missed trades. This illustration covers only the three declared components. It does not capture changing prices, incomplete executions, alpha decay, cross-impact or uncertainty in the supplied volumes. Save the inputs with the result and investigate the failed rows before using the scenario in a decision memo.

Keep in the decision record

• $18 million is the traded notional; $100 million is the portfolio denominator.
• Averaging cost does not remove a row-level constraint breach.
• The scenario inputs and cost curve are invented educational assumptions.

Source notes

1. CFA Institute: Trading Costs and Electronic Markets, 2026

Sources inform the definitions and limitations. Scenario inputs and arithmetic are publication illustrations, not extracted market observations. Access checks are dated in the source inventory.