Generic algorithms: Systematic execution of securities in the market can be performed in various ways. Each of these ways will serve one particular purpose. These Algorithms can belong to categories of Iceberg, TWAP, VWAP, Participation and Seek and Destroy.
Each algorithm has certain basic features that it shares commonly with all other algorithms. Limit price, Maximum or minimum price at which the algorithm will send orders to the market. Order quantity, the amount of quantity to trade.
ICE Berg: This algorithm sends out limited quantities of order at certain fixed price and continues to do so till the order is completed. Good thing about this algorithm is it will execute trades at desired price but on negative side some times order gets unfilled.
TWAP: Time weighted average Price algorithm is used to trade a fixed quantity in set time period. Order is broken down into discrete time intervals (waves) with an equal quantity to be traded in each wave.
VWAP: Volume weighted average price algorithm executes orders proportional to average historical market volume over the same period.
Participation (% Volume): This algorithm is used to trade up to the order quantity using a rate of execution that is proportional to the actual volume trading in the market.
Seek and destroy: This algorithm is designed to hide on the passive side of the order book until there is sufficient liquidity available on the aggressive side.
Limit on Close: The limit on close algorithm aims to trade the target quantity during the closing auction of the exchange. If no limit price is set it will trade at a limit of 2.5% of the last traded price before the auction.
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