The Anatomy of Trading Algorithms

$\Rightarrow$ Many cool, new stylized facts 

• Sizes, duration, number of child orders
• Usage of market vs limit (& dark vs not) 

Amazing data!

• Parent and child orders for 2012-2016
• Large algo provider, 4 algos
• 5,000+ securities, 961 institutions, $675B  

" open up the black box of trading algorithms"

Key Contributions

Any insights re: strategies by different trader types?

• Proxies for traditional informed/uninformed?
• Market vs. limit: who uses aggressive limit? 
• The basic insight from theory: more informed $\to$ more aggressive.
  • Any evidence?

Comment 1. Algo usage: who and/or when?

Different algos = different users/info vs. different timing?

• Parent order = order to an algo (???).
  • Relatively short: 20-90 min.
• Does the same institution use different algos over the day?
  • E.g., more aggressive early (while the info is new)?
  • Or later? Day-end-deadline?

Not all parent orders are created equal

• Do characteristics of a parent order drive # of child orders, aggressiveness, visibility etc. ?
• Any endogeneity concerns when analyzing the impact of these?
• The algo-level analysis (really nice!) addresses a chunk of these? 
  • But only four algos ... rather coarse?

Comment 2. Parent Order Costs

As an aside:

• How do you proxy for the costs of non-execution?
• Why the impact of "visibility" (+ve vs -ve) is so algo-dependent?

Any insights to those of us using public data?

• Better tools to compute institutional trading costs?
• Insights on how to identify "parent orders" in public data?
• Proxies for the costs using public data?

Comment 3. Prop to public data?

Further Comments: (No) Price Impact 

Filled

Unfilled

Many (even aggressive!) orders have no price impact!

• at 100ms: 80%!
• Malinova and Park (2020) document similar facts for trades.
• What do the per-stock-per-time-interval averages tell us?
• When do the orders do have the price impact?

Perspective that "cannot infer future order flow".

Further Comments/Questions: Order Anticipation 

@katyamalinova

malinovk@mcmaster.ca

slides.com/kmalinova

sites.google.com/site/katyamalinova/