A trade scheduling algorithm is an execution algorithm (trade executing algorithm) that slices large orders (institutional size orders)- i.e., parent orders– into a sequence of smaller trades (child orders) to be executed over time. The child orders cover minute horizons over the time assigned to the parent order.
The main parameters of a trade scheduling algorithm are:
- Price evolution model: random walk, short-term momentum, mean-reversion.
- Market impact model: instantaneous trading with memory (history impacts trading).
- Performance criteria: deviation from a target benchmark.
- Trading style: trading has to be as quick as possible to minimize opportunity cost without inflicting a noticeable market impact.
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