How markets work
Algorithmic trading
Using computer programs to decide the timing, price and size of orders automatically.
How it works
Most institutional execution is algorithmic. The algorithms are usually not predicting anything; they are slicing large orders to minimise market impact against a benchmark such as VWAP.
A separate category — high-frequency trading — competes on speed rather than on view, profiting from very small, very short-lived price differences.
Related terms
- VWAPThe average price a security traded at over a period, weighted by how much traded at each price.
- TWAPThe average price over a period, weighting every moment equally regardless of volume.
- Market impactThe extent to which your own order moves the price against you as it executes.
- High-frequency tradingAutomated trading that competes on speed, holding positions for fractions of a second.
More in How markets work
- Auction
- After-hours trading
- Average daily volume
- Adjusted close
- Best execution
- Volume
- Bid-ask spread
- Circuit breaker
All 33 How markets work terms · The full glossary, 433 terms
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