Baird and Imperative Execution, the parent company of IntelligentCross, have just released a study focused on the effectiveness of Minimum Quantity (MinQty) tactics in algorithmic trading.
The study evaluated Baird trading data from randomly selected trading days in 2019, and the results led to some surprising findings that challenge much of the conventional wisdom around the perceived benefits of MinQty. For example:
* MinQty has long been a widely used tactic to prevent information leakage. However, on its own, it offers mixed value in protecting executions against poor performance.
* Evidence that executions using MinQty outperform those without is not only tepid, but the effectiveness actually declines with orders greater than 200 shares, and as order urgency and aggressiveness increase.
“Clearly, Minimum Quantity should not be used as a generic defense tool, but it can act as a venue optimizer,” said Jack Miller, Head of Trading with Baird. “This study shows that using a lower MinQty on more protective venues and higher MinQty on less protective venues allows for smarter routing across available destinations. We’re not saying traders should get away from using MinQty approaches, just that the conventional wisdom around the most meaningful benefits needs to be rethought.”
Additional details, including the full study, can be accessed here: https://www.rwbaird.com/equities-research/electronic-trading/Minimum-Quantity-Order-Protection-vs-Venue-Optimization