Algo Execution Path and Momentum Timing - Center of Mass

In this paper, we introduce the Center of Mass as a metric to summarize the loading path of an execution algorithm and evaluate the algo’s momentum timing capability. Algorithms distribute fills based on several factors. Market condition forecasts, including momentum, volatility, spread and liquidity, and benchmarks, dictate how fast and aggressive or slow and passive an algo behaves. A simple TWAP algorithm executes at a constant rate. In contrast, a more complicated opportunistic algorithm may capitalize on market liquidity, change execution speed according to short-term momentum forecast, and fill a larger portion of an order in a shorter time. The opportunistic algo may also detect unfavourable conditions and execute less aggressively. These behaviour changes may lead to different outcomes, and it is crucial to understand what is happening ‘under the hood' and how this can affect performance.

Please email contact@bestx.co.uk if you are a BestX client and would like to receive a copy of the paper, which is also hosted within our FAQ section of the UI.