“Intelligent” Volume Weighted Average Price Algorithms

Exegy Improves Best Execution with Predictive VWAP Algorithm powered by real-time predictive signals in their Signum portfolio

Exegy Inc., a provider of low-latency market data and execution solutions, predictive trading signals, and hardware-acceleration technology, has released the performance results of an execution algorithm powered by real-time predictive signals in their Signum portfolio.

The new algorithm applies Signum’s real-time predictive signals to significantly improve execution costs by over two basis points. By enhancing a Volume Weighted Average Price (VWAP) algorithm with Signum’s prediction of quote direction and duration, Exegy’s Signum team produced an “intelligent” algo capable of capturing 52% of the performance gains achievable with perfect knowledge of the next national best bid and offer (NBBO) quote.

“In addition to the dramatic reduction in execution cost, our work also shows that our real-time signals, which capture sub-millisecond price movements, can yield meaningful financial benefits for traders operating at longer timescales—opening the use of Signum to brokerages, execution venues, principal traders, asset managers, and those who develop their own algorithms,” says Andy Lee, Director of Quantitative Research at Exegy. The goal of a VWAP execution algorithm is to minimize market impact by adhering to a trading schedule consistent with the intraday trading volume profile of a given security. Signum utilized two of its real-time predictive signals to enhance best execution; Quote Vector predicts NBBO quote direction, while Quote Fuse predicts the duration of NBBO quotes.  

Compared to a standard VWAP, Signum’s predictive VWAP algorithm showed over two basis points lower execution cost than the benchmark VWAP and 77% of the constituents in our securities universe (S&P 500) improved over the benchmark. Exegy is offering the predictive VWAP algorithm as a free example application, anticipating that firms with experienced execution algorithm designers will be inspired to use these signals to achieve even greater returns.

This predictive VWAP algorithm for best execution is the latest application of Signum signals in the creation of enhanced trading strategies. Exegy has previously introduced two alpha-generating strategies: Octane, a long-short index strategy with 1.9x better returns and 2.5x less drawdown than the S&P 500, and Diesel, its more defensive complement that provides 10x less drawdown. Exegy believes that the evolution of AI and ML driven trading strategies won’t stop with high frequency traders and market makers.  The Signum team continues to develop signals that improve all aspects of trading including execution algorithms and order management systems.

For more information visit www.exegy.com