Trading algorithms of the future

As algorithmic trading has evolved over the years, both AI and quantitative models have overcome many of the initial modelling challenges. Let’s explore how the new VWAP plus model from ION combines much of this latest technology.

The standard VWAP algorithm slices up orders into smaller pieces that match the market volume expected throughout the day. Unfortunately, it is impossible to predict how much volume will trade in the near future or during the auction periods.

Volume prediction is like estimating traffic on a motorway. You can make an educated guess at the exact number of cars at particular times of day, but it’s impossible to predict exactly. Just like traffic avoiding an accident on the highway, volumes and trading patterns can change if news has been released that affects markets.

ION’s latest algorithms aim to better approximate the trend, so day-to-day variability is included within the estimated profile of trading. This is especially useful around auctions, and as large percentages of daily volumes are traded in those auctions. A considerable improvement in the models’ ability to track the VWAP benchmark is now represented.