Per the CFAI text (Reading 34: 126.96.36.199 page 139):
[In relation to Liquidity-seeking algos] “These algorithms are also appropriate for trading securities that are relatively less liquid and thinly traded…”
Liquidity seems to be one of the defining attributes of an order when deciding between a Percentage of Volume algo and a Liquidity-seeking algo. (Illiquid = liquidity-seeking; Liquid = Percentage of Volume).
Why would this be?
If I’m trading an illiquid security with a POV algo, I have the risk of paying the spread continually in orde r to keep up with volume.
On the flip side, if I’m trading an illiquid security with a Liquidity-seeking algo that has high urgency, I’ll have the same risk of paying the spread for the sake of execution.