IB's Adaptive Algo Strategy Sound?

Discussion in 'Order Execution' started by ChadZ1, Jun 6, 2017.

  1. ChadZ1

    ChadZ1

    As far as I can tell IB's Adaptive Algo simply breaks your order up into small pieces and places limit orders starting at the edge of the spread that get increasingly aggressive over time at a rate dictated by the priority/urgency setting (https://www.interactivebrokers.com/en/index.php?f=19091). IB says this strategy is good for less liquid stocks with wider spreads, but I'm not so sure.

    Does anyone know if the above is all that IB's adaptive algo is doing or if there is more going on behind the scenes like hidden or fill or kill orders and/or some sort of randomization? I'm far from an expert in order execution, but is it just me or does that seem like a strategy with some major flaws? For one, starting out by posting limit orders straight out of the gate would at least move midpoint-pegged/relative orders away from you and I suspect generally influence the market against you. If I was looking to trade and saw someone incrementally getting more aggressive with their limit price, I'd move my orders away to see where they stopped and then hit their order.
     
  2. ChadZ1

    ChadZ1

    Anyone? Even if you haven't used it, does the algorithm sound like a good strategy?
     
  3. I've used for illiquid stuff that I need to trade near the open. Doesn't seem terrible for that. But I have not done any kind of anaylsis or comparison. I generally prefer the IB WVAP algo when I can afford to be passive.
     
  4. ChadZ1

    ChadZ1

    I see, thanks for the info. I'm hoping to use it to get out of semi-liquid positions quickly (ideally a minute or less, large but not huge positions) so may be worth a try. Although I still have concerns about the strategy, so maybe I'll do a fill or kill order before using the adaptive algo so that I don't move midpoint/nbbo relative orders away from me.