ConvergEx Group has launched its Abraxas tactical trading algorithm, which utilizes a proprietary multi-dimensional sensitivity profile to exploit dark liquidity, favorable price movements and volatility changes.
"As opposed to schedule-based algorithms, tactical trading algos are designed to intelligently navigate difficult markets and trade less liquid symbols,” explains Scott Daspin, managing director in global electronic sales at ConvergEx.
He adds, “To do this Abraxas trades opportunistically as liquidity becomes available at favorable prices, leverages both displayed and non-displayed markets and adjusts its level of aggression based on many market factors using the multi-dimensional sensitivity profile.”
To explain how the multi-dimensional sensitivity profile works Daspin uses a poker analogy. “For Abraxas to trade well it has to be playing brilliant poker in 20 different ATSs and exchanges at once and in these venues every move a trading system makes – every IOI, IOC or posting – has an effect,” he says.
He notes that every trading move becomes a “tell” to the market and often the first generation of tactical trading algorithms act like “middling poker players who will sit down at any table, bet big when they have their first good hand and play far too timidly when it’s time to press their advantage.”
Daspin says that Abraxas’ “tilt” toward agency pools means that the algorithm is “sitting at the right tables” and that the dynamic market sensitivities employed tell the algorithm how aggressive it can and has to be.
In order to determine how, when and where to trade the sensitivity profile looks at five key market signals: price – as price becomes more favorable it will execute more of an order; timing risk – as volatility increases it will become progressively more aggressive; spread – the wider the spread, the more passively it will participate; tick – as the stock price is printing it will become more passive or aggressive as needed; and momentum – if there is a strong trend in the stock price it will become more aggressive.
“Someone who’s been a trader for years knows how, when and especially where to place an order,” explains Daspin. “Abraxas automates how that trader would instinctually balance the importance of a stock’s price, volatility, spread, tick and momentum at any give point in the order’s lifecycle.”
The Abraxas algorithm also relies on a built-in proprietary darkness rating which ranks non-displayed liquidity venues and favors exposure to the most benign – often agency – liquidity before routing to other venues.