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January 2, 2014

Weeden Upgrades Its Top Algorithms

By By John D'Antona Jr.

John D'Antona Jr.

Trading at the close just got a little easier.

Of the 11 algorithms the institutional broker offers, Weeden & Co.'s three leading trading strategies-CloseIQ, Ghost and VWAPIQ (volume-weighted average price)-were most in need of refinement given recent market trading trends, David Margulies, head of the firm's electronic products group, told Traders. The algos in question needed to be better suited, he said, to the growing trend of increased trading at or near the market close. That is, between 3:30 and 4 p.m. EST.

"The amount of trading at or near the close has really increased, and our algos need to reflect that trend," Margulies said. "Our algos have adapted to this changing liquidity pattern."

Weeden's newest algorithm designed to tap into end-of-day liquidity, CloseIQ, was the first to see changes to its code. Though announced only ten months ago, the firm added real-time closing volume prediction and price sensitivity controls. This allows it to better take advantage of end-of-day trading opportunities, along with the option to expose orders to its separate Closing Cross strategy.

Closing Cross allows clients to execute anytime during the trading session at the official "future" closing price. Once the official closing price has been disseminated, the client will have the dummy price replaced with the actual closing price.

"For CloseIQ, we've included more real-time signals to help the algo decide if historical volume versus real-time volume is any different and act on that," Margulies said. "It has been fine-tuned to account for month-end, quarterly rebalancing and expirations-all of which can now be better predicted."

For its Ghost strategy, designed to patiently work an order using the price action of the security as the primary driver for execution speed, Weeden enhanced a dynamic fair-pricing calculation that is intended to mitigate adverse selection and gaming.

Launched in 2011, Ghost is used for less-liquid stocks and has become more opportunistic and patient about how it executes an order, Margulies said. The fair-price uses proprietary metrics to figure out when a stock is in a predetermined fair price range and trade only at that time.

"Gamers move the price-usually to a non-fair price-and that hurts the buyside," he said. "Ghost won't trade when this happens."

VWAPIQ has also been modified for the close. More granular VWAP curves were included in the algo's software, taking into consideration unique sector trading patterns that allow the algo to better estimate VWAP for that day.

"There are more data points included in the VWAP trading curve, which can identify more accurate trading patterns and produce better pricing models," Margulies said.


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