Types of Trading Algorithms used by Institutions. financial-spread-betting.com
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The first one we have is VWAP. An Algo is a computer driven execution model rather than someone sitting there tapping on a computer or making a phone call.
VWAP stands for Volume Weighted Average Price. This Algo aims to match the VWAP of the instrument over a period of time. The VWAP is a moving average ultimately weighted by volume. So the more volume is executed, the more weighting that’s given as opposed to just a price moving average.
TWAP stands for Time Weighted Average Price and is another trading algorithm based on weighted average price and compared to VWAP the calculations are even simpler. This is the average price of a security over a particular time. Usually used for distributing large orders during a trading day.
Steps – this is more of a price driven Algo. The Algo would participate more aggressively when the price is in our favour