[ S U R V E Y | A L G O R I T H M I C T R A D I N G ]
trades , now the question is , which algorithms are actually favoured by our respondents ? Taking the top spot , we have VWAP with 79 % of respondents reporting that they use this algorithm . This is followed by dark liquidity seeking ( 77 %) and % volume ( participation ) ( 68 %). While VWAP and dark liquidity seeking have both seen an increase in demand over the last 12 months , % volume has seen a slight fall in demand .
Shifting client demand has driven innovation in algo trading . More traditional strategies , such as VWAP for example , have begun to incorporate machine learning and predictive techniques to remain relevant . More commonly , clients are expecting more advanced methods of liquidity seeking , in particular in harder-to-trade stocks during liquidity events , such as the close and monthly expiries . During periods of high volatility , some quant funds as well as funds which typically use long duration or schedule-based strategies such as VWAP or TWAP , will see a shift in urgency to go into more arrival like benchmarks such as liquidity seeking algos .
When it comes to dark liquidity , it is also worth noting , as previously mentioned , that many of our respondents were reporting that they were happy with their current providers exposure to dark pools , so while there may have been a decline in the rating of the algo ’ s performance ( figure 1 ), buy-side traders are still more than happy to use them ( figure 6 ).
Across the board we have seen upward trends in which types of algorithms are used , with two
Figure 5 . Algorithm usage by value traded (% of responses ) |
percent of respondents |
2024 |
2023 |
2022 |
unanswered |
4.91 |
2.98 |
4.11 |
0-5 % |
6.72 |
6.29 |
6.96 |
5-10 % |
5.94 |
5.30 |
6.65 |
10-20 % |
8.79 |
7.62 |
6.65 |
20-30 % |
9.04 |
9.27 |
8.23 |
30-40 % |
8.53 |
7.28 |
5.70 |
40-50 % |
8.79 |
11.26 |
4.75 |
50-60 % |
9.82 |
11.26 |
10.13 |
60-70 % |
5.43 |
15.23 |
19.94 |
70-80 % |
8.01 |
8.94 |
9.18 |
80 % and over |
24.03 |
14.57 |
17.72 |
Figure 6 . Types of algorithms used (% of responses ) |
algo type |
2024 |
2023 |
2022 |
% Volume ( Participation ) |
68.48 |
72.19 |
73.42 |
Dark Liquidity Seeking |
77.26 |
75.17 |
75.63 |
Implementation Shortfall ( Basket ) |
25.06 |
23.51 |
23.42 |
Implementation Shortfall ( Single Stock ) |
54.01 |
52.98 |
49.68 |
TWAP |
36.69 |
36.42 |
38.29 |
VWAP |
79.07 |
78.81 |
80.70 |
Target Close / Auction Algos |
58.14 |
52.65 |
53.80 |
Other |
4.65 |
4.97 |
4.43 |
exceptions . As we have already mentioned there is a slight dip in demand for % volume ( participation ) although it is still third billing . Secondly , “ other ” has seen a very slight drop in demand , although pairs trading and dynamic percentage volume were the most common answers . Overall , however , it would seem that respondents are looking to choose more traditional algorithms this year .
Looking forward , we asked our respondents if they are looking to make use of any additional algorithmic trading providers within the next 12 months . While only 16 % of long-only managers are looking to make use of additional providers , those that do are quite varied in who they are looking to move to include . Jefferies are a firm favourite with several mentions , as are Cowen , Berenberg and Liquidnet .
The TRADE received a record number of responses to this year ’ s Algorithmic Trading Survey . The top 15 algo providers , in terms of response numbers received from long-only managers , have been profiled in this report , while a number of other providers received a high enough level of responses to have their scores recorded .
76 // TheTRADE // Q1 2024