Algorithms Used By Financial Institutions

Enhanced DMA strategies

  • Iceberging: Large order is partially hidden. Max shares shown used as input.
  • Pegging: Order is sent with dynamic price that changes according to market conditions.
  • Smart order routing: Liquidity is aggregated from several sources. Orders are matched to the best price and liquidity.
  • Simple time slicing: Order is split and market orders are sent at regular time intervals.
  • MOC: Order is sent into the closing auction.
Quantitative algorithms
  • VWAP: Uses standard VWAP as a benchmark and attempts to distribute large volume at the best price adjusting for volume traded in the period.
  • TWAP: Similar to VWAP but uses time instead of volume.
  • Participate [Inline, Follow, With Volume, POV]: Trades volume using a fraction as input.
  • MOC: Enhanced MOC with optimized risk and impact.
  • Implementation Shortfall (Execution Shortfall, Arrival Price): Manages the trade off between impact and risk to execute trades as close as possible to a target midpoint .
– A buy-side handbook Algorithmic Trading
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