Chapter 6 - Trading algorithms

Abstract

Trade Implementation is an extremely important phase of the investment cycle, but unfortunately, it has often been overlooked. Historically, investors would simply send their order to a broker who would transact the shares in the market without much intervention from the investor. But with the advent of algorithmic trading and electronic markets, investors now need to be much more proactive in their trading decisions. Investors need to select appropriate execution strategies for their orders and these strategies need to be consistent with the investment objective and motivation of the trade. This also requires selection of broker, algorithm, and algorithmic parameters. This chapter provides investors with an overview of the algorithmic trading environment and an algorithmic decision-making process to assist investors make appropriate trading decisions and to ensure that these implementation decisions are in the best interest of the fund.