Instinet algorithm automates human-trading strategies
Instinet algorithm automates human-trading strategiesInstinet has launched Sidewinder, an algorithm that adjusts the rate at which a trading desk buys and sells a stock as its price hits certain benchmarks. The algorithm allows faster reactions to market shifts, enabling traders to quickly make "momentum" trades and take advantage of value strategies.
Instinet automates human trading strategies
Melanie Wold
29 May 2007
Agency brokerage Instinet has taken a traditional trading strategy and turned it into a new algorithm, to enable faster reactions to market forces than a human could achieve.
Instinet’s Sidewinder algorithm dynamically adjusts the rate at which a trading desk buys or sells a stock as its price moves relative to selected benchmarks. Sidewinder can take advantage of so-called "value" strategies, whereby the rate a trader buys shares slows down as the price moves away from his target, and speeds up as it moves closer.
Sidewinder also enables traders to do "momentum" trades automatically, where it buys more as the price goes up and less as it goes down, or vice versa.
The benchmark element means that if a stock is part of an exchange traded fund or index, there is a high correlation that the stock won’t move against movements of the ETF or index. So if it does momentarily get out of line, Sidewinder can take advantage of it.
Mike Plunkett, president of North America for Instinet, said it is difficult to be unique these days in algorithms, so it took a traditional trading strategy and added to it. “Truly useful algorithms mimic what any good trader would do intuitively, while at the same time making the trading process more efficient,” he said.
Sidewinder, available via Instinet’s trading platforms or partner FIX systems, allows clients to customize execution style, benchmarks and participation rates. Sidewinder can also be pegged to the widening or tightening of the spread between two stocks or between a stock and an ETF. Sidewinder uses Instinet’s SmartRouter to seek liquidity in displayed US dark pools.
Plunkett said the feedback from clients testing the algorithm has been positive. The target market for Sidewinder is buyside trading desks and single stock traders, he said.
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Labels: algorithmic trading, electronic trading, instinet
posted by Victor Lloyd Smith @ 5:28 PM
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