A trading algo (algorithm) that is used by electronic traders to reduce implementation shortfall (IS)- i.e., the market impact of trading. Practically, it helps minimize the market imbalance at any given point during the trading period. The algorithm targets the optimal trade by investigating variables such as volatility of underlying stocks, trade sizes, liquidity preferences, volatility distribution and spread distribution of underlying stocks, and stock correlations.
It can be dynamic by investigating real-time conditions and optimizing the use of historical and real-time data.
Comments