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Article

Algorithmic Trading Usage Patterns and Their Costs

Ian Domowitz and Henry Yegerman
The Journal of Trading Summer 2011, 6 (3) 9-21; DOI: https://doi.org/10.3905/jot.2011.6.3.009
Ian Domowitz
is a managing director at the Investment Technology Group, Inc., in New York, NY.
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  • For correspondence: Ian.domowitz@itg.com
Henry Yegerman
is a managing director at the Investment Technology Group, Inc., in New York, NY.
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  • For correspondence: Henry.yegerman@itg.com
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Abstract

Using algorithmic trading data across seven strategy types over 2009 and 2010, we examine usage patterns and performance for a sample of buy-side firms served by a multiplicity of brokers. Strategy usage is categorized by demand for liquidity, volatility, and concentration of orders traded. The data suggest employment of dominant strategies for the majority of firms, and shifts in strategy use are marginal across time and market conditions. In terms of performance, dominant strategies constitute a sensible approach at two ends of a spectrum: for easy orders and for situations that are extremely demanding in terms of liquidity and volatility. Performance matters, but does not distinguish individual strategy types in either regime. In all other circumstances, strategy shifts are possible and potentially profitable, given performance differences.

  • Copyright © 2011 Investment Technology Group, Inc. All rights reserved. Not to be reproduced or redistributed without permission.
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The Journal of Trading: 6 (3)
The Journal of Trading
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Algorithmic Trading Usage Patterns and Their Costs
Ian Domowitz, Henry Yegerman
The Journal of Trading Jun 2011, 6 (3) 9-21; DOI: 10.3905/jot.2011.6.3.009

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Algorithmic Trading Usage Patterns and Their Costs
Ian Domowitz, Henry Yegerman
The Journal of Trading Jun 2011, 6 (3) 9-21; DOI: 10.3905/jot.2011.6.3.009
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  • Article
    • Abstract
    • ALGORITHMIC TRADING STRATEGIES AND DATA
    • STRATEGY USAGE AT THE LEVEL OF THE BUY-SIDE DESK
    • ALGORITHMIC STRATEGY PERFORMANCE
    • DOMINANT STRATEGIES AND SURPRISES INMARKET CONDITIONS
    • CONCLUSION
    • ENDNOTES
    • REFERENCES
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