Which trading algorithms does the institutional traders use?

 

Institutional traders use a variety of trading algorithms to execute their trades efficiently and effectively. These algorithms are designed to analyze market data and execute trades based on predetermined rules and criteria.

Some common algorithms used by institutional traders include:

1. VWAP (Volume Weighted Average Price) algorithm: This algorithm is used to execute large orders over an extended period of time. The algorithm calculates the volume-weighted average price of a security and executes trades at or around that price.

2. TWAP (Time Weighted Average Price) algorithm: This algorithm is similar to VWAP, but it executes trades over a specific time period rather than based on volume. The algorithm calculates the time-weighted average price of a security over a specified time period and executes trades at or around that price.

3. Implementation Shortfall algorithm: This algorithm is used to minimize the cost of executing a large order by breaking it into smaller orders and executing them over time. The algorithm calculates the difference between the price at the time the order was placed and the average execution price, and aims to minimize this difference.

4. Momentum trading algorithm: This algorithm is based on the momentum strategy, which involves buying securities that have shown an upward trend and selling those that have shown a downward trend. The algorithm uses technical indicators such as moving averages and relative strength index (RSI) to identify trends and execute trades accordingly.

5. Mean reversion algorithm: This algorithm is based on the mean reversion strategy, which involves buying securities that have fallen below their historical average and selling those that have risen above it. The algorithm uses statistical models to identify deviations from the mean and executes trades accordingly.

These are just a few examples of the trading algorithms used by institutional traders. The specific algorithms used may vary depending on the trading strategies employed and the preferences of individual traders or firms.