The Popular Algorithmic Strategies for U.S. Equity Investors

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New Greenwich Report Ranks the Popular Algorithmic Strategies for U.S. Equity Investors

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The Most Popular Algorithmic Strategies

April 28, 2021 | Stamford, CT — The growth of algorithmic trading and its implications for U.S. equity markets are topics of frequent media discussion but what receives considerably less attention is exactly which algorithmic strategies investors are using. A new Greenwich Report answers that question as part of a broader analysis of the constantly evolving U.S. equity market structure.

The three most popular algorithmic trading strategies in 2020 were implementation shortfall, VWAP (volume weighted average price) and dark only. From 2019 to 2020, implementation shortfall grew to 20% of algo volume from 18%. VWAP also increased modestly.

“Amid the volatility of the COVID-19 crisis, investors turned to tried-and-true approaches for execution while leaning heavily on their brokers in a year of dramatic ups and downs,” says Shane Swanson, Senior Analyst for Coalition Greenwich Market Structure and Technology and author of Algos, ATSs and Automation in Equity Markets.

With market structure in focus, the recently approved periodic auction from Cboe BYX is seen as one of the less favored market developments, with conditional orders and posting on speed bump exchanges remaining at year over year highs.

Can Cboe Replicate Success In The US

“Cboe has been very successful with periodic auctions in Europe, so it will be very enlightening to see if they can replicate that success in the U.S. in light of these headwinds when they launch in Q3 of this year,” says Swanson.

Institutions also value liquidity most highly in their routing, as shown when comparing Alternative Trading Systems (ATS) as ranked by their uniqueness of liquidity versus the actual volumes they execute.

“Even though firms rank certain ATSs quite highly regarding their uniqueness, only 2 out of the top 10 ATSs with the highest uniqueness rankings broke into the top ten of volume rankings for ATSs,“ says Swanson.  “Although many factors influence routing decisions for ATSs, liquidity provisioning is still paramount.”

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