Question of the Week - March 8th 2016

How do market conditions affect the selection of Algorithmic Trading Strategies?


Chart 1: Distribution of Orders Across Algorithmic Trading Strategies and Volatility Conditions 


Chart 2: Average Order Size Across Algorithmic Trading Strategies and Volatility Conditions 

  • Volatility plays a key role in the way a trader decides to execute an order and can dramatically affect the cost of that order. Some Algorithmic Trading Strategies incorporate volatility into trading schedules while others operate independent from current market conditions. We examine here how volatility affects traders’ selection of algorithmic strategies and order sizes that are fed into them.
  • The proportion of orders executed via direct market access decreases significantly with increasing volatility; the proportion of orders executed across other strategies remains largely unaffected by volatility.
  • With the exception of scheduled strategies, traders feed larger orders into each strategy as volatility increases.
  • We note similar patterns in strategy selection and order size as volume conditions change as well.


The analysis was limited to trades of Large Cap US stocks between 1/1/2015 and 12/31/2015 with order sizes under 1% MDV. A subset of clients, all of whom trade with multiple brokers, were included. Strategy classification was done qualitatively, based on broker definitions of algorithms. Orders reflect algo parent orders. Parameter changes do not constitute new orders; an order runs until it is cancelled or filled.


Refer to ITG Peer Analytics for information on available ITG Peer Group Database based analytics.

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