Discussion in 'Order Execution' started by qazmax, Mar 12, 2004.

  1. qazmax


    Anyone have any personal experience executing these orders?

    I do not mean have you sent a VWAP and had it fill for you, but rather do you make the VWAP executions for a profit either as pricipal or agent?

    I am wondering if you could explain some of the risks you deal with and the most common headaches?

    Also, how profitable is this for you or your company? Very, medium, not so much?

  2. Yes; why do you ask?
  3. qazmax


    I am just trying to learn a part of the industry I do not a lot of knowledge on.

    Just want to be as marketable as possible to the world.

  4. Brandonf

    Brandonf ET Sponsor

    it will mostly bring in commish. It costs 3 to 5 cents a share, less if you are very active. most of the time its if you are doing say 100K shares plus and want to just get the average price. They will go in and buy say 10K shares every half our or something. If its bigger they try to be about half the volume in every half hour period. If they get a price better than the VWAP sometimes they get a split on the differance..so like if the VWAP is 23.88 and your average is 23.80 they might get an additional 3 to 4 cents on top of the 3 to 5. Thats my understanding of how it works. I asked a friend of mine who works the third market desk @ a NY firm and thats pretty much how he explained it to me.
  5. qazmax


    So he splits the price improvements 50/50...

    Does he split the disimprovements 50/50?

  6. Brandonf

    Brandonf ET Sponsor

    I doubt it, but not getting it too often is a good way to lose your job and lose the commission business.
  7. Bsulli


  8. As an order flow trader, the trader's benchmark to beat is teh VWap when working an order. Even if the customer isnt holding you to it, it is always looked at in reference to your average price..

    These orders in general are a pain in the ass for many reasons.

    a) Very time/labor intensive. you have to eyeball the stock the entire day and arent guaranteed $$$...

    b) Things happen out of your control... This can work for you, but it is very frustuating when you are beating eth VWAP the entire day, and unforseen news crashed teh market or stock you are trading, causing you to fall behind the VWAP..

    c) large random prints go up outside teh market... LEts say you are trading a buy VWAP. All fo a sudden a HUGE rpint hits teh tape .30 away from teh market... It skews the VWAP price and their is no way for you to catch up....
  9. qazmax


    Bsulli - thatnks for the link that was a very interesting article.

    Mdl060374 - interesting points of view...
    What do you think of this last paragraph from the article above?

    "But the pendulum may be migrating away from VWAP toward other types of algorithms. "Most people have not liked VWAP as a trading style but found it was measurable, repeatable and verifiable," says Greg Tusar, a vice president at Spear, Leeds & Kellogg (SLK). Tusar says buy-side firms are trying to use algorithms to minimize the total cost rather than manage the costs over the entire day. SLK has an algorithm called 4Cast that "is going to come up with a schedule with the least possible (execution) time while trading off (transaction costs and market) impact," says Tusar. "

    What types algorithms are going to replace the VWAP? Anyone know any details on the SLK "4Cast" and how it works?

  10. gam1111


    Don Bright said in his chat sessions few weeks back" equities follow futures because broker dealers and institutions trade with VWAP and large share size that is hedged by futures".

    Any body understand what he was saying about the how VWAP and large size is hedged with futures?
    #10     Mar 12, 2004