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.
Erin StantonContributors Managing Director, ITG Analytics Asia Pacific