Cutting Edge introduction: The trouble with algorithmic execution

The algorithms used for optimal trade execution can be computationally demanding, meaning investors may not be able to address all relevant factors. A new optimisation scheme overcomes this with a specific set-up of the problem. Nazneen Sherif introduces this month’s technical articles

Market impact, or the effect of large orders on market price, is a problem investors have always faced. If a trade cannot be executed in one go, because of a lack of liquidity at the prevailing market price, the obvious solution is to break it into a series of smaller trades – the risk, of course, being that the market moves against the investor while those trades are being executed. This is known