Large funds, insurance companies, mutual funds, and pension funds must use algorithms in order to get good prices on huge amounts of stock. The algo's hide as best as they can their intention sin the market whether they are buying or selling. The algo's also try and find liquidity in numerous dark pools and open markets as fast as they can.. much faster than you or I could ever watch and type out buy sell orders etc. A large majority of these algos are produced by the ecn's and dark pools and institutions and NOT THE FUNDS. Here are a few explained: 1. IMPLEMENTATION SHORTFALL ALGO http://en.wikipedia.org/wiki/Implementation_shortfall http://www.itginc.com/news_events/papers/implementation_shortfall.pdf 2. VWAP ALGO volume weighted price http://en.wikipedia.org/wiki/VWAP http://www.cis.upenn.edu/~mkearns/papers/vwap.pdf 3. ARRIVAL PRICE ALGO (very popular) http://corp.bankofamerica.com/publicpdf/equities/Adaptive_Arrival_Price.pdf 4. SPECIALIST AVOIDANCE ALGO http://goliath.ecnext.com/coms2/gi_0199-4279692/The-impact-of-limit-order.html 5. MARKET PARTICIPATION ALGO http://www.automatedtrader.net/algo-trading-news-651.xhtm http://www.thetradenews.com/electronic-trading/algorithmic-trading/926 http://web.unx.com/index.php?option=com_content&task=view&id=85&Itemid=174 http://www.paladynesys.com/NewsArticles/HW-05172007.htm 6. OPTIMIZATION/MARKET ON CLOSE ALGO https://portfolio.jefco.com/Documents/2005_QES_TOC.pdf http://www.itginc.com/offerings/itg_algorithms.php 7. AN ALGORITHM EXPLAINED http://www.asx.com.au/investor/education/basics/open_Close.htm Hopefully this gives a litel clarification on some of the popular algo's being used by trading desk.. there are numerous others utilised by hedge funds etc to try and profit from spreads, arbs, etc
To further your Algo Educ... The Buy Side Demands More Transparency Into Brokersâ Dark Pool Algorithms... http://www.advancedtrading.com/showArticle.jhtml?articleID=206503947 Brokers Code Dark Pool Routing Into All Algorithmic Trading Strategies http://www.advancedtrading.com/showArticle.jhtml?articleID=206800439 <img src="http://www.enflow.com/p.gif">
And they still have a hard time beating the market even with all those algos. Simply buying MOS or POT or GLD, OIL, OIH, or DBA in jan 2007 would have outperformed virtually all funds for no work.
i consider a risk of capital to be work.. anyway .. it is easy to see moves on a chart or talk about stocks that have moved huge ...AFTER THE FACT.. so you are rigth monday morning quarterbacking really is no work... i can get the lottery numbers correctly for no guess work involved right after they are drawn.. amazing aren't I!
http://www.credit-suisse.com/ib/en/equities/aes_forex.html aes with credit suisse http://www.credit-suisse.com/ib/en/equities/pop_w_aes_forex_diagram2.html