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Question of the Week - April 26th 2016

How many algorithms does an institution use?

 

Chart 1: Total Number of Frequently Used Algorithms by Institution Quartile 

 

Chart 2: Average Number of Algos by Strategy and Percent of Orders 

 

  • The suite of algorithmic trading products available to institutions has grown rapidly and traders must now weigh many options when choosing to use an algo. We explore here how institutions distribute orders across the plethora of tools available.
  • The first chart shows the distribution of algo usage across institutions, limited to those algos with more than 100 orders. The 25th percentile institution only used 5 algos frequently while the 75th percentile institution used 23 different algos with regularity.
  • The number of algos used varied by strategy; institutions used more liquidity seeking and VWAP algos than other strategies, nearly 8 and 6, respectively.
  • Within each strategy, there were typically a few algos used for a small fraction of orders and one algo used for a large percent of orders. In other words, order flow is typically directed to a few preferred destinations. Take IS algos for example, in total, desks used around 5 different IS algos. Of those five, one was typically used for over 20% of orders while almost two were used for less than 1% of orders.

 

The analysis was limited to algorithmic transactions of US stocks between 1/1/2015 and 12/31/2015 across clients using Triton as an EMS.Some portion of overall trading activity may not be captured as many institutions use multiple execution management systems; overall results are representative of algorithmic usage trends.

 

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

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