“Algorithmic Trading (Algos) is the use of pre-programmed computer instructions (Algos) to automatically submit trade orders and manage execution. These instructions are based on variables like time, price, and volume, allowing for high-speed, data-driven execution and complex strategies that are impossible for human traders alone.
Common execution algorithms include Time-Weighted Average Price (TWAP), Volume-Weighted Average Price (VWAP), Percentage of Volume (POV) algorithm (also called Participation), and Arrival Price (AP).
Common profit taking algorithms include Pair Trading and Cross asset algos.
The primary distinction between Algorithmic Trading and Smart Order Routing is Algorithmic Trading makes use of Time as a variable where it may not participate in a market immediatly to achieve a better overall price throughout a specified time window. Algos may also use multiple data sources with a Unified Trading Architecture as signals to determin when to place trades. The outcome of these trades are often evaluated using Transaction Cost Analysis solution (TCA) to optimize the parameters that influence future behaviour.”