Algo Toolbox series: Smart Blocks Improves Performance and Lowers Risk
Key takeaways
• Liquidnet smart blocks combines over the day trading with intelligent block seeking
• Lower trading cost as orders with executed smart blocks outperform arrival by 1.4 bps, a statistically significant 3.9 bps improvement over the cost when smart blocks was not enabled.
• Better performance vs. Interval VWAP, with a statistically significant performance improvement of 2.5 bps among orders with executed smart blocks.
• Reduced standard deviation of performance against arrival and interval VWAP. Enabling smart blocks led to a decline in standard deviation of 15.3% and 33.6% for performance versus arrival and interval VWAP, respectively.
• Reduced tail risk as extreme outcomes are avoided. Enabling smart blocks led to a dramatic decline in the tail risk of performance versus both arrival and interval VWAP.
This report has been compiled by Gareth Exton, Head of Liquidnet's Execution + Quantitative Services EMEA and Conor Diviney, Execution Consultant