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Question of the Week - March 29th 2016

How many venues do Implementation Shortfall orders receive fills from and how is performance affected?

 

Chart 1: Distribution of Orders by Number of Venues Across Algo Providers 

 

Chart 2: Average IS Cost by Number of Venues Across Algo Providers 

  • Algorithmic trading strategies are an essential tool in many traders’ workflows; however, most of the time, there’s very little insight into the behavior of these tools. We aim to elucidate a segment of algo behavior here, namely, the number of venues from which each order receives fills.
  • The proportion of orders with fills from a single venue varies across providers. Broker A’s algo completed 70% of orders with fills from one venue while Broker J’s algo filled approximately 30% of orders with fills from one venue.
  • IS cost is generally higher for orders with fills from a larger number of venues. We can’t conclude that cost is higher as a result of the larger number of venues, however; algos may be forced to visit more venues as a result of other factors which also affect performance, such as low liquidity.

 

The analysis was limited to market orders for Large Cap US stocks between 1/1/2015 and 12/31/2015 with order sizes under 0.25% MDV. Only algorithms used by a statistically significant number of clients were included. Top and bottom 1% of orders by IS cost were excluded from performance statistics. Orders reflect algo orders. Parameter changes constitute new orders; an order runs until it is cancelled, corrected or filled.

 

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

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