Sometimes You Trade Slow Sometimes You Trade Quick

Posted by Brian Schaeffer on Dec 3, 2019 4:59:26 PM

The title of a recent blog post, “How Fast Should You Trade”, brought me back to the early ’90s and one of my favorite rap songs, “Sometimes I Rhyme Slow Sometimes I Rhyme Quick”, by Nice and Smooth.

Not only did it bring me back to the song, but also to a simpler time in trading before the mass electronification of the equities market. Today, understanding the nuances of when to trade slow or trade quick requires market participants to have the tools and resources to strategically pick and monitor the right spots to trade that result in the least amount of impact.

The blog post summarizes the trade-offs of trading fast or slow by measuring post-order reversion. At Clearpool, our clients can manage and monitor the effect of the speed of trading in a few ways.

  1. Customize an Arrival Price StrategyArrival Price is a dynamic liquidity-seeking algorithm that aims to minimize implementation shortfall by completing an order close to its arrival price. It is designed to manage the trade-off between market impact and price risk. The Algorithmic Management System (AMS) has a default Arrival Price algorithm, but we encourage our clients to use their discretion to set expected participation rates and urgency to influence how slow or fast their strategy will trade.
  2. Measure Chained Symbol Performance Against an AP Benchmark in Real Time - The real-time analytics suite in the AMS allows our clients to analyze the same symbol, same side chained order performance when discretion is applied and executions are broken up across multiple strategies. A typical use case we see for aggressive orders where our clients have discretion is a mix of Dark Aggregator, SOR, and POV algorithms to minimize the post-trade impact. An effective way to analyze performance is to follow these simple steps:

    • Make sure chained is selected
    • Drill into a symbol
    • Analyze symbol performance against arrival price
    • Share real-time analytics with your client

  1. Analyze EOD TCA Post-Trade Strategy Performance – Measure post-trade performance 30 seconds and 3 minutes after order completion. This is an available metric for Arrival Price, Dark Aggregator, SOR and POV. This reversion statistic is a direct measure of an order's performance versus arrival price converted into basis points. It is the average price of the order at the midpoint 30 seconds and 3 minutes after order completion. This is a great follow-up to your shared intra-day real-time analytics.

Our goal is to ensure our broker-dealer clients have all the tools necessary to control the behavior of their algorithms. Through the AMS, we empower brokers to use their discretion, market structure knowledge and intellectual property to provide a uniquely differentiated electronic trading solution for their clients.

If you are a client reading this post, I encourage you to reach out to your relationship manager to understand the levers in the AMS that control a strategy's speed. If you are not yet a client, request a demo.

To end this post where we started—this is me, at the Clearpool 2018 Holiday Party with Nice and Smooth.

“Sometimes I rhyme slow, sometimes I rhyme quick…”



Topics: Market Microstructure

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