This lesson will show you the Accumulate/Distribute algo which can help you to achieve the best price for a large volume order without being noticed in the market, and can be set up for high frequency trading. By slicing your order into smaller randomly-sized order increments that are released at random time intervals within a user-defined time period, the algo allows the trading of large blocks of stock and other instruments without being detected in the market.
IB’s Accumulate/Distribute algorithm is an order type that can be used across products including stocks, options, futures and forex.
In its basic form, Accumulate/ Distribute allows clients to discreetly enter large volume orders and execute trades over time with minimal market impact and lesser risk of detection by market participants.
In its advanced form, the algo can be configured to restrict order entry to specified price ranges or be determined by the distance between two moving averages on the same product or non-related contracts such as an index ETF.
In addition, the algo uses IB’s SmartRouter to help ensure orders will be routed to an exchange venue in accordance with best execution.
Let’s say we want to set up an order to buy 20,000 shares in ticker IBKR.
Select the ticker, buy designation and enter the desired share volume.
But we want the algo to slice the order into pieces of 500-shares at a time every 30 seconds to help avoid detection.
If desired, set the time period during which you wish the order to trade.
Let’s say we only want the algo to operate if the share price is trading below the moving average taken over the past 60-minutes.
To do this, choose a Relative order type which must be relative to one of the several selections from the dropdown menu.
Note the variety you could choose from including, the last trade price, VWAP, exponential moving average and so on. If I select the moving average the software will prompt you to enter a time period – enter 60 and choose minutes.
Note the associated value appears and you can easily compare this to where the shares are currently trading.
Use the check boxes to determine the frequency of order submission in the event the algo is restricted by your inputs. You can also attempt to further hide your footprint in the market by randomizing both time and size of the order.
Use the Conditions area of the order entry screen to create further technical stringency to the order. For example, you could determine that the order will only operate within a defined price range by entering specific values.
Let’s add a further technical condition for this trade and program the order to only work if the 50-day moving average is at least 5% greater than the 200-day moving average.
Choose from the dropdown menu here and make the required selections and inputs. You can tell by comparing the current values with your requirement, in our case 5%, whether the condition would prevent the trade from working currently.
When the order is active, the user is alerted to the invalid condition and will not proceed until it is valid. To demonstrate, updating the order with an invalid value causes the order to stop working.
Use the entry fields below to set additional constraints involving either the ticker you are trading or even non-related ones.
You can make your order as complex as you like, remembering the tradeoff between successful completion of the trade and complexity of order.
You may save orders you create using the Template dropdown menu for use at a later time. The Accumulate/ Distribute algorithm is an advanced order entry tool that can be made as complex as you wish. Adding a variety of sophistication to the conditions process allows investors to aim for VWAP pricing throughout the day or to restrict order entry until specific technical conditions are reached.
Disclosure: Interactive Brokers
The analysis in this material is provided for information only and is not and should not be construed as an offer to sell or the solicitation of an offer to buy any security. To the extent that this material discusses general market activity, industry or sector trends or other broad-based economic or political conditions, it should not be construed as research or investment advice. To the extent that it includes references to specific securities, commodities, currencies, or other instruments, those references do not constitute a recommendation by IBKR to buy, sell or hold such investments. This material does not and is not intended to take into account the particular financial conditions, investment objectives or requirements of individual customers. Before acting on this material, you should consider whether it is suitable for your particular circumstances and, as necessary, seek professional advice.
Supporting documentation for any claims and statistical information will be provided upon request.
Any stock, options or futures symbols displayed are for illustrative purposes only and are not intended to portray recommendations.
Disclosure: Order Types / TWS
The order types available through Interactive Brokers LLC’s Trader Workstation are designed to help you limit your loss and/or lock in a profit. Market conditions and other factors may affect execution. In general, orders guarantee a fill or guarantee a price, but not both. In extreme market conditions, an order may either be executed at a different price than anticipated or may not be filled in the marketplace.