[ S U R V E Y | A L G O R I T H M I C T R A D I N G ]
perhaps most impressive is the fact that close to a quarter of respondents indicate that they leverage algos to trade 80 % or more of their value, clearly validating the effectiveness and acceptance of algos as an integral part of their overall trading activities.
Diversity in types of algorithms used When evaluating the types of algorithms that long-only managers use the most from their providers, VWAP, dark liquidity seeking and % volume strategies emerged as the top three( Figure 6). The biggest mover was % volume, showing a robust yearover-year 5 % increase, at nearly 74 %. This recent jump could be attributed to the trader’ s increasing need to reduce market footprint while navigating through worsening market volatility.
On the other hand, dark liquidity seeking strategies had the biggest decline at-2.94 %. Considering dark liquidity seeking represents the second most used algorithm according to the survey, this remains a strong option for all buy-side traders as they seek liquidity beyond the lit markets. A few reasons for the recent decline could be a result of regulatory
Figure 5. Algorithm usage by value traded(% of responses) |
Percentage of respondents |
2025 |
2024 |
2023 |
unanswered |
2.96 |
4.91 |
2.98 |
0-5 % |
5.93 |
6.72 |
6.29 |
5-10 % |
6.91 |
5.94 |
5.30 |
10-20 % |
8.40 |
8.79 |
7.62 |
20-30 % |
8.40 |
9.04 |
9.27 |
30-40 % |
6.67 |
8.53 |
7.28 |
40-50 % |
8.89 |
8.79 |
11.26 |
50-60 % |
10.12 |
9.82 |
11.26 |
60-70 % |
8.15 |
5.43 |
15.23 |
70-80 % |
9.14 |
8.01 |
8.94 |
80 % and over |
24.44 |
24.03 |
14.57 |
Figure 6. Types of algorithms used(% of responses) |
Algo type |
2025 |
2024 |
2023 |
% Volume( Participation) |
73.58 |
68.48 |
72.19 |
Dark Liquidity Seeking |
74.32 |
77.26 |
75.17 |
Implementation Shortfall( Basket) |
22.96 |
25.06 |
23.51 |
Implementation Shortfall( Single Stock) |
51.11 |
54.01 |
52.98 |
TWAP |
38.02 |
36.69 |
36.42 |
VWAP |
81.23 |
79.07 |
78.81 |
Target Close / Auction Algos |
56.05 |
58.14 |
52.65 |
Other |
2.72 |
4.65 |
4.97 |
changes that limit the use of dark pools and champion transparency, continued enhancements in efficiency in the lit markets and concerns related to potential information leakage in the dark markets, which could benefit more sophisticated counterparties.
Methodology Buy-side survey respondents were asked to give a rating for each algorithm provider on a numerical scale from 1.0( very weak) through to 7.0( excellent), covering 15 functional criteria. In general, 5.0( good) is the‘ default’ score of respondents. In total, 2189 provider ratings were received from a record number of 614 individual respondents, across 34 algo providers, yielding thousands of data points for analysis. Only the evaluations from clients who indicated that they were engaged in managing long-only strategies have been used to compile the provider profiles and overall market review information. Each evaluation was weighted according to three characteristics of each respondent: the value of assets under management; the proportion of business done using algorithms; and the number of different providers being used. In this way the evaluations of the largest and broadest users of algorithms were weighted at up to three times the weight of the smallest and least experienced respondent. Finally, it should be noted that some responses provided by affiliated entities were ignored. A few other responses where the respondent could not be properly verified were also excluded. We hope that readers find this approach both informative and useful as they assess different capabilities in the future.
62 // TheTRADE // Q1 2025