VWAP
The VWAP algorithm starts with a historical profile of the percentage of an instrument trading during subintervals of the trading day, including the opening and closing auctions. That historical curve is dynamically updated during the day, taking into account actual trading done that day. This dynamic VWAP curve can increase VWAP performance approximately 10%, where performance is measured in terms of deviation from VWAP.
Orders may be executed over the entire trading day, with or without participation in the auctions, or may be executed during any subinterval of the trading day. The start and end time of the order time and whether to participate in auctions is provided via FIX tags or through the selection of options on the FlexTrade provided trade entry screen. Orders executed within the trading day do not participate in either the opening or closing auction.
Market Participation/Percentage of Volume
Percentage of Volume executes an order as a percentage of volume trading in the markets. For liquid names, this type of strategy results in minimal signaling risk unless the participation rate is high. For illiquid stocks, however, there is tremendous signaling risk if one wishes to trade every time a print hits the tape. FlexTrade’s percentage participation algorithm adapts dynamically based on the underlying liquidity of the stock. In illiquid stocks, the algorithm is careful to avoid “me too” trading that clearly signals the presence of an active percentage participation strategy.
Implementation Shortfall
Implementation Shortfall minimizes the tradeoff between the market impact of immediately executing an order versus the risk of market drift if the order takes too long to execute. FlexTrade’s FlexEdge portfolio trade scheduler provides the risk model, which in combination with the market participation algorithm, provides a unique implementation shortfall solution that re-optimizes the schedule every 15 minutes.
Options Multi-Leg
The options multi-leg algorithm allows traders to define customized spreads involving up to six options, each of which may have a different underlying Instrument. When trading standard spreads, the algorithm also provides dynamic routing of spread orders amongst complex order books and individual markets, routing order volume to those markets providing the greatest fill rates.