EdgeTrade’s VWAP algorithm outperforms 93 % of large institutions

That’s according to a recent Elkins/McSherry anaylsis, a compilation of institutional trading data from over 220 large institutions,c overing more than 20 million trades, USD 5 trillion dollars of principal and 400 billion shares of trading from 1500 investment managers and 2000 brokers worldwide. Elkins/McSherry uses this trading data to assess institutional averages for commissions, fees and market impact costs.

Volume-Weighted Average Price is a benchmark, measuring the price at which the majority of a given day’s trading in a particular stock took place. Calculated by taking the weighted average of the prices of each trade, VWAP is commonly used by institutional investors such as pension plans.

‘There is a notion that most VWAP algorithms are alike; nothing could be further from the truth,’ says EdgeTrade CEO, Joseph Wald. ‘The empowered buy-side – traders who are taking complete control of their trading and execution decisions through adoption of algorithmic and DMA (direct market access) technologies – is just beginning to understand the significant cost ramifications between sending their orders to an agency VWAP algorithm like EdgeTrade’s, versus those offered by firms that conduct proprietary trading. With the mandates of Reg NMS on the horizon, large asset managers and pension funds, for example, no longer can ignore the fiduciary consequences of receiving poor execution by sending their orders to a proprietary desk algorithm – particularly VWAP, which is one of the easiest to pick apart.’

Clients of EdgeTrade, totaling more than 150 in North America and Europe, include hedge funds, mutual funds, asset management firms and broker-dealers, and the company’s overarching mission is to empower traders with an unconflicted, agency-only model that offers high-speed and quality of anonymous execution, coupled with innovative trading technology.

‘Our most consistent method to trading cost analysis utilizes VWAP,’ says Elkins/McSherry Senior Managing Director, James Bryson. ‘This approach is widely accepted by institutional traders, given that the VWAP is a good benchmark for indicating the potential cost to buy or sell stock.’

TABB Group Analyst, Adam Sussman , adds: ‘As algorithms become more widely available, the buy-side is turning to transaction cost analysis to match the most appropriate algorithm with a given strategy, as well as identify whose algorithm is likely to outperform similar offerings.’

Industry research suggests that algorithms, while ubiquitous, are currently underutilized by the buy-side. EdgeTrade’s organically developed algorithmic strategies, however, are actively used by the firm’s clients as an important productivity component in their arsenal of electronic trading tools. EdgeTrade attributes this high usage rate to education and training, provided to each client user on an ongoing basis, and the firm’s quantitative team that offers an unconflicted, agency-based consultative environment for discussing both a trader’s confidential trading objectives and the customization of an algorithmic strategy for reaching those goals.

Beyond its portfolio of benchmark strategies, EdgeTrade is also pioneering the next generation of algorithms: smart order execution strategies. Sumo, launched last fall, is this next generation category breakthrough that addresses traders’ needs to immediately complete a trade while mitigating market impact and eliminating information leakage.

Execution Management System (EMSTM) is EdgeTrade’s independent, agency front-end platform for anonymous single stock and basket equity trading. As a trading hub, EMS offers high-speed connections to multiple execution venues, DMA order types, algorithmic trading strategies and low latency market data.

While a holistic offering, EMS is modularly designed to give traders what they want through customized screen specifications. A trader may, for example, integrate EdgeTrade’s algorithms into their own front-end rather than using EMS. As an open platform, traders have the option of connecting to EMS via FIX or other trading and order management systems. EdgeTrade’s algorithmic strategies and direct market access order types are currently integrated with major industry trading and order management systems.