AbleMarkets HFT Flows Deliver 1.5% Mean Execution Improvement in May 2024

Post date: 2024-06-19 05:02:23 GMT

The simple overlay delivers powerful price improvements.

TLDR:

AbleSlice delivered 1.5% mean and 1.27% median price improvements over TWAP on buy AND sell orders across all Russell 3000 stocks in April 2024.

Figure 1 shows distribution of buy and sell order improvements driven by AbleSlice HFT Overlay. As shown in the Figure, the majority of stocks received price improvement for both buy and sell orders.

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AbleSlice is a straightforward overlay designed to assist portfolio and execution managers in boosting their execution performance by an average of 25% per year across the entire Russell 3000 universe by avoiding high-frequency traders (HFTs). Essentially, the AbleSlice overlay capitalizes on the behavior of HFTs. When HFTs are highly active in a particular stock, their trading patterns typically revert to the mean shortly due to the short-term nature of HFT activity. Consequently, if HFT flows indicate net buying, the prices will temporarily rise due to this activity, but they will eventually decrease as the HFT influence wanes. Therefore, high net-buy HFT activity suggests a strategy of selling into the HFT flow, while high net-sell HFT activity aligns best with buying.

Key Stats for May 2024:

sell: count 3129.000000

mean 1.548156

std 1.315121

min -2.013726

1% -0.364324

5% 0.109245

10% 0.368471

25% 0.768711

50% 1.270988

75% 2.038523

90% 3.061249

95% 3.787888

99% 5.715049

max 19.758184

Name: sell improvement, dtype: float64

buy: count 3129.000000

mean -1.521779

std 1.210614

min -14.166277

1% -5.580651

5% -3.623675

10% -2.964949

25% -2.006412

50% -1.263667

75% -0.769695

90% -0.380598

95% -0.144806

99% 0.366163

max 1.974549

Name: buy improvement, dtype: float64

What is AbleSlice Overlay?

AbleSlice Overlay is a data feed that provides insights into High-Frequency Trading (HFT) flows for execution brokers and portfolio managers. When HFT flows demonstrate net buying, they create a temporary price spike, elevating prices above market norms. Fortunately, these inflated prices are short-lived; due to the brief trading horizon of HFTs, the heightened buy flows soon revert to the mean, and prices return to their fundamental levels. For execution managers, this means a straightforward adjustment to their existing strategies: hold off on buying when HFTs are net buyers and capitalize by selling into the elevated prices.

Conversely, when HFTs are net sellers, they temporarily depress the price of an instrument below its fundamental value. In such cases, execution managers should avoid selling their positions and may consider increasing their buying activities.

The price distortions induced by HFT activity usually persist for 20-60 minutes after detection and reporting by AbleMarkets, allowing portfolio managers ample time to adapt their execution strategies and take advantage of these opportunities.

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