Automation Trading, please help CPK or s2000

CFA Level III
#1

I can’t grasp any point the difference between Logical participation , opportunistic strategy, specialized strategy

Could anyone please help summarize them for me T_T ?

#2

Logical participation tries to minimize market impact. There are three sub-types of logical participation:

  • VWAP strategy: the order is broken up during the day to try to beat the VWAP for that day. Computer models are used to try to predict the intraday pricing, and the volume (percent of order) is adjusted accordingly: more volume when price is expected to drop, less volume when it’s expected to rise.
  • TWAP strategy: the order is broken up during the day to try to match the TWAP for that day. Computer models are used to try to predict the intraday volume (not pricing, as in VWAP), and the volume is adjusted accordingly: more volume when the market volume is higher, less volume when the market volume is lower.
  • Percent-of-volume: the order is broken up so that it represents 5% – 20% of the daily volume, and the order remains open until it is filled.

Opportunistic participation is mostly passive – a small volume at a time – but becomes active (high volume) when liquidity increases.

A specialized participation strategy is anything that doesn’t fit one of the defined strategies (i.e., not pure logical participation, pure implementation shortfall, pure opportunistic participation).

#3

s2000: I don´t agree on 2 definitions (refer to CFAI book 6, page 41):

  • VWAP: computers used to predict forward-looking VOLUME

-TWAP: “assumes a flat volume profile and trades in proportion to time”

I agree on the other (%-of-volume; opportunistic participation; specialized participation).

#4

thanks a lot all you guys

#5

I believe that you’re mistaken here. The objective of a VWAP strategy is to meet or bet the VWAP; thus, you need to know when the price is above the VWAP and when it is below the VWAP. You need to model the price. (I agree that modeling the volume can be important as well, but modeling the price is more important.)

I hadn’t heard it that way (but I haven’t the curriculum), but I’m happy to concede the point.