ConvergEx Rolls Out Algo to Tap Pre-Market Liquidity
February 27, 2013
ConvergEx Group is now offering an automated trading option for buysiders who want to trade before the equities mart opens.
Trading the market during the thinner pre-open - the time prior to 9:30 am - has always been done manually. Now, the ConvergEx algo works between 7:30 am and 9:29 am - facilitating faster and more efficient tradingbefore the masses jump in, according to Scott Daspin, managing director in the Global Electronic Execution group at ConvergEx.
Using the algo also helps keeps the buysides' order size private. That would not be the case if the order is being executed manually by floor traders.
Daspin added the algorithm is valuable during earnings seasons or at times of market-moving news when traders are more frequently looking to buy or sell positions before the market open. Pre-market volume is usually lighter and subject to more volatility than during the normal trading day, he said, thus the algo is programmed to take into consideration these factors.
"This is targeted at momentum traders and players," Daspin said. "Our clients wanted the ability to trade electronically before the market opens."
Daspin told Traders Magazine that the algorithm does computes a prediction of market volume and then calculates trading spreads and volatility. Once these factors are estimated, the algorithm can then execute based on the user's desired participation rate. It also seeks liquidity in the dark venues, not just in the displayed markets.
The algorithm, currently in use with a small number of institutional investors, was developed using ConvergEx's Automated Testing Facility, which rigorously back-tested over 20,000 different trading scenarios using years of pre-market trading data.