Running with the Level: Volatility, VWAP and the Pitfalls of Strategy Selection

2015 Year in Review Asia
May 14, 2018 Erin Stanton

When it comes to improving trading performance, selecting the right strategy is crucial. An ITG survey of buyside traders last year found that 85% believe strategy selection has the most potential to impact trading performance, far outstripping the importance of broker choice or venue selection. But before traders choose a strategy, they would be well served to consider prevailing market conditions. The relationship between algorithmic trading strategies, trading costs and volatility has been well documented, including in a 2011 paper by Ian Domowitz. Domowitz found that usage of a VWAP strategy in a high-volatility environment added an eyebrow-raising 18 basis points of impact costs versus a VWAP trade executed in a low-volatility environment.

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  • Erin Stanton

    Managing Director, ITG Analytics Asia Pacific