Instinet, a global agency broker, today launched Wizard, a new arrival price algorithm that sets its trading schedule by balancing a stock’s historical and option-implied volatility risk with the estimated market impact and the trader’s short-term alpha estimate. Wizard relies on the well-known U.S. Shortterm Equity Risk Model from Northfield Information Services, one of Wall Street’s most respected providers of risk forecasting models.
“While basic arrival price algorithms are certainly helpful in minimizing market impact, their execution is often overly aggressive and can consequently result in deceptive performance,” said Michael Plunkett, President, North America, Instinet. “Wizard uses a 20-factor risk model to set the trading schedule, thereby moving traders beyond an ‘execute now’ scenario to one which the stock is allowed to potentially move in the trader’s favor.”
Wizard, which is available immediately through Instinet’s NewportTM and Instinet Trading Portal® front-ends, allows traders to set limit prices and start and end times for trades, as well as choose among three styles—aggressive, passive and normal—depending on the desired execution timeframe. Additionally, by utilizing Northfield’s 20-factor risk model, the algorithm develops a customized trading schedule for each stock by taking into account its historical and option-implied volatility, which is a measure of the likely impact of future events like mergers and acquisitions, Federal Reserve behaviors and geo-political news.
Wizard becomes the tenth algorithm in Instinet’s suite of global trading strategies. These include scheduling algorithms, such as Global VWAP or Percentage of Volume; investment strategy-specific algorithms for pairs trading and risk arbitrage; and intelligent access algorithms, such as BlockPegSM, Cobra and NighthawkSM.
