For investors wanting to track and trade according to price and volume patterns, this lesson explains how to create Volume Weighted Average Price or VWAP orders.
Interactive Brokers offers two VWAP orders – a Best Efforts VWAP for all US stocks and a Guaranteed
VWAP for large cap stocks. This algo order type seeks to achieve the Volume-Weighted Average price
from the time you submit the order to the close of market.
In this tutorial we will look at setting up IB’s Best Efforts VWAP in Trader WorkStation. In a moment we’ll
look at some important exchange-related considerations, but first let’s see how to enter a VWAP order
in Trader Workstation.
In Mosaic enter a ticker symbol in the Order Entry panel, determine whether a Buy or Sell order, and
enter the quantity of shares to be entered.
If the time-in-force designation is set to limit (LMT), the order will be constrained to the prevailing price
at the time of order entry and may not fill. You may wish to change the time in force to a market (MKT)
order so that it will follow the VWAP and execute as designed.
To locate the selection of Algo order types, click on the Advanced expand button and click on the
Destination dropdown menu. Here all relevant exchange destinations are listed. At the bottom, locate
Algorithms and IB Algo – click there.
The list of available algos is displayed from the dropdown menu. Select VWAP from the list. You could
Submit the order at this point.
However, you can specify a Start and End time. The system will attempt to execute the order over the
designated time period chosen. You could enter a Start Time later in the day and let the order run
through the end of day.
Checking the box “Attempt to never take liquidity” will aim to keep orders to buy on the Bid and those
to sell at the Ask price.
Because there is a risk your order might not complete, you have the option to check the box to “Allow
trading past end time”.
You may also set a value up to 50% in the “Max Percentage” field. The value entered here aims to
ensure that your participation in daily volume is set to a maximum value and of course can be left blank.
You are now ready to Submit your order.
Because exchanges have different pricing models, when submitting orders IB’s SMART routing
technology is designed to consider liquidity and exchange fees. Some will charge fees to orders that take
liquidity while some may pay rebates for orders that add liquidity to the exchange.
By attempting to avoid liquidity-taking fees and/or maximizing liquidity-adding rebates by remaining on
the bid or at the asking price, an algo order entered this way may miss the benchmark VWAP it is
designed to track.
There is a trade-off between trying to stay on track with the VWAP algo and achieving the lowest
possible execution cost. But the user also has the option to allow the algo to trade beyond the
designated end time for the order in the event it does not fully execute.
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.