... that most people don't know
Price
Book size
Best Ask Price
Best Bid Price
$92.01
$92.04
...
...
$92.10
$92.13
Spread
Whether you are an investor
or a fund manager
and you don't want to be picked off by others
and you wish you could turn the tables
and use this stuff in your trading!
Investor placed an order to buy 100 shares of an ETF "VTI"
We would save a lot if we wait and buy at this point
There are times when we could lose 0.2% straight if we place a "market-order". A long-term investor who is not looking to buy or sell immediately should be able to earn the spread by patiently placing limit orders
If we place a market order to buy
$109.89
$110.11
What we would have paid if we had been patient with a limit order
What we paid
Bid Side
Ask Side
Example of a market order
Execution algorithms are machine-learning based strategies that look at all the petabytes of data in stock markets to guess intra-day price patterns.
Execution algorithms take requests from long-term investors about what they want to trade and figure out how best to place those orders.
Execution algorithms are intra-day trading high-frequency strategies that long-term investors can use to reduce the work of portfolio management.
Price Movement of SPY
In high turnover portfolio management systems, savings by smart execution algorithms are significant.
Let us take a simple case:
Above calculation shows 8% increment in portfolio returns solely from execution algorithm savings.
Let us take a simple case:
Savings could be even more !!
In previous analysis we did not incorporate market micro-structure adverse effects when executing large orders naively.
How much work it seems to need :)
How much work it actually needs !
Courtsey: https://sosamelasilva.files.wordpress.com/2012/12/iceberg.jpg
Let us take a simple example to get the idea in.
Market Movement prediction is a data intensive job. Sophisticated AI systems are set up to solve this problem.
One of qplum's algorithms predicting when the price would go up
Starting of prediction duration
End of prediction duration
A red vertical bar means that at that time, price is at a local minima
Price movement for etf VSS shown with blue lines
... and not fighting it
By Gaurav Chakravorty
Execution algorithms are a class of intraday trading strategies that can help an investor or a portfolio manager try to get the best available price on that day
My dream is to make investing a science ... not a competition, but a truly inclusive process. The way I think we can come together to achieve that is to make investment management more (1) Thorough (2) Efficient (3) Transparent. Means: A.I and Tech
