IS Zero reinvents VWAP to minimize implementation shortfall
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INTRODUCING IS ZERO: Reinventing VWAP Algorithms to Minimize Implementation Shortfall

January 24, 2024

After months of research, development, and testing, we’re thrilled to reveal a new category of execution algorithms that could change the way you trade.

According to our recent poll, 72% of traders use the VWAP algorithm to minimize Implementation Shortfall (IS) for low-urgency trades—a preference that underscores the limitations of traditional IS algorithms. Often branded as liquidity-seeking or arrival price algorithms, IS algorithms aim to balance execution risk with market impact but fall short for traders who prioritize long-term average cost efficiency over the variance of individual trade outcomes. As a result, VWAP has become the default choice for those focusing on impact over execution risk.

While VWAP algorithms may be the best available option to minimize average IS for low-urgency orders, they are not primarily designed for this purpose. Their mandate is to track the VWAP benchmark, and that creates several deficiencies when the trader’s goal is to minimize average IS.

IS Zero is a meticulously engineered IS algorithm that bridges this gap. IS Zero combines the desirable features of VWAP—such as non-urgent execution and distribution of orders throughout the day—with improvements on its deficiencies to more effectively minimize IS. Improvements include:

  • Adopting a trade plan that minimizes market impact as opposed to a volume profile
  • Implementing dynamic flexibility in following the schedule based on the intraday liquidity of the stock
  • Providing liquidity in Alternative Trading Systems (ATSs) in addition to exchanges while tracking the schedule

The launch of IS Zero marks a significant advancement in the landscape of algorithmic trading, offering a more effective alternative to the volume-weighted average price (VWAP) algorithm for minimizing implementation shortfall (IS).

Request the white paper using the button below for our detailed discussion of the deficiencies of traditional VWAP algorithms, the design of IS Zero, and performance results from our A/B testing.