[baberuth]

Brutal title (Not OP's fault).

The article basically suggests that algos are reducing market volatility.

Algos don't try really hard to get VWAP. VWAP is REALLY easy to achieve, _beating_ VWAP is what most banks are trying to do when they trade large blocks.

A lot of the stories about warring algos and detecting each other are just that: stories. Yes, it has happened, but by and large thats not the game thats going on.

[fr0sty]

Citation needed for your assertion that VWAP is "REALLY easy to achieve".

[vecter]

In the extreme case, consider you were on the other side of every other trade that happened in the market. You would by definition have achieved VWAP over some time period.

Trading randomly during any given time period probably comes close to achieving VWAP. I'm sure something a little more intelligent could probably achieve it in expectation.

[joncooper]

VWAP is "volume-weighted average price," not "average price". Therefore, to replicate it, you need to participate in line with volume-at-time, not 1/N per time bucket. This requires you to estimate the volume envelope over the time period of interest. (Often a day, or in the case of hedging certain new issue convertible bonds, up to several days.)

[vecter]

Yeah, that's why I said in the extreme case you have to participate in all the volume. Of course randomly trading doesn't prove that you achieve VWAP, but I'm just saying that it's probably not terribly far off.

[fr0sty]

And how far is "not terribly far"? Pennies? Nickles? Dimes? Dollars?

I can say with a great deal of confidence that a "random" VWAP algorithm would, on average, suck.

[joncooper]

For context:

Many brokers will guarantee an execution at VWAP. It's a competitive business. The last time I put in such an order, I traded a double-digit percentage of the day's volume and paid 10bp commission (0.10%).

[joshu]

Yay! Building a volume model was one of my first projects as a quant.

[joncooper]

Neat. Tell us about it?