One year in, IS Zero is rewriting the playbook for low-urgency trading and has quickly become one of the most heavily used algorithms in our suite with adoption growing every quarter. Why? Because it delivers on its promise–consistently beating VWAP’s implementation shortfall (IS) performance for low-urgency orders. 

In a sample of more than 895,000 orders¹ executed since its launch, IS Zero outperformed VWAP with lower IS costs in every order size category. And the savings grows with order size–exactly when market impact cost matters the most. The figure below illustrates average cost in both algorithms for orders in a variety of size groups, shown as a percentage of the average daily volume of the stock being traded.

How IS Zero Beats VWAP

Traders have traditionally relied on VWAP algorithms to reduce market impact when trading orders with low urgency. But because market impact depends on factors beyond volume alone, VWAP doesn’t actually minimize market impact. In addition, VWAP algorithms tend to be inflexible, limiting their ability to optimize outcomes across stocks. IS Zero takes a smarter, more dynamic approach that actively minimizes market impact to reduce IS cost. 

Here’s how: 

Market-impact aware schedule: Rather than trading in proportion to volume, IS Zero trades in proportion to a market impact curve designed from known contributors like volume and volatility.

Built-in flexibility: IS Zero allows for flexibility in following its schedule that is tuned to the liquidity of the stock traded and the time of day. 

Darker liquidity: IS Zero executes substantially more volume in dark pools than a traditional VWAP algorithm, quietly improving execution quality. 

Details of IS Zero’s design were published in the original paper that accompanied the algo’s launch, including a visual representation of the trading schedule, detailed description of the flexibility in following its schedule, and performance statistics from AB testing. 

Our clients are seeing the difference and adopting IS Zero in place of VWAP for low-urgency execution. The chart below says it all, highlighting a steep growth curve in IS Zero trading volume over time.

IS Zero isn’t a tweak on VWAP. It’s a new paradigm–more intelligent, more adaptive, and relentlessly focused on lowering cost. For traders managing low-urgency flow, the evidence points to IS Zero. 

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Reach out to us at clientservices@bestexresearch.com to learn more about IS Zero and how it could help improve your performance. As always, IS Zero can be tailored to meet the unique needs and preferences of each client’s order flow. 

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¹This sample includes all orders to our IS Zero and VWAP algorithms since 2023. From the sample, we have removed limit orders, orders trading for less than five minutes, and orders executing less than $10,000. We have trimmed the top and bottom 2.5% of orders by arrival price performance. The sample does not represent an AB test of performance, so orders may not be matched in difficulty; however, estimated arrival performance within the two groups is nearly identical as projected by the BestEx Research transaction cost model for equities.

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The results shared here represent average performance over a large sample of orders, and each order will result in unique performance based on its characteristics and market conditions. Also, performance of individual orders can vary significantly from the average. Nothing contained herein constitutes a solicitation, recommendation, endorsement, or offer to buy or sell securities, futures, or other financial instruments or to engage in financial strategies which may include algorithms or to route orders to or participate in any particular liquidity pool. This article reflects the views and opinions of BestEx Research Group LLC. It does not constitute legal, tax, investment, financial, or other professional advice. 

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