Institutional broker Weeden & Co. and its quantitative partner, technology vendor Pragma, have unveiled a new smart algorithm that is price-sensitive. The algo simultaneously scans lit and dark markets, using a stock’s price direction to determine execution speed.
Dubbed Ghost, the algo officially launched earlier this month and now has about 250 buyside users. It increases its trading rate when a price becomes favorable and slows down orders when prices move in the adverse direction.
David Margulies, head of the electronic products group at Weeden, called Ghost a valuable tool during volatile periods, especially for micro, small, and mid-cap securities, where a large order can potentially move prices.
“In a market where volatility is in play, we’ve seen quite a nice uptick in usage of a product like this, because as stocks are oscillating up and down, we’re able to take advantage of favorable price moves,” Margulies said.
Ghost monitors for prices, and then tries to establish that the price is valid, according to Margulies. Sometimes stocks move on very little volume, and traders don’t want to participate if somebody is just trying to game the order, he added.
“People have been able to use this strategy with confidence,” Margulies said. “They’re able to participate and know it’s a real price, and it’s not just somebody temporarily moving the price, and the stock’s going to revert right back.”
Ghost uses the OnePipe liquidity aggregation methodology to source non-displayed liquidity while it simultaneously works in lit markets. That way, it can wait to take advantage of favorable price movements. Users can customize the algo to look for the specific price movements they want, and OnePipe can deliver block trades when conditions are appropriate.
The algo also uses the newest version of the Lifeguard anti-gaming logic, which has been updated to better deal with high-frequency order flow. Lifeguard aims to manage information leakage and improve execution quality.
David Mechner, chief executive officer of Pragma, said clients want a strategy that can be counted on to trade orders intelligently without constant monitoring. He said Ghost fills that need, taking advantage of favorable price action to drive trading velocity–without interfering with the price formation process.
“People can put even a large order into it and be confident that it’s going to execute well over a long period of time without close supervision,” Mechner said.
