ABCs Of Trade Account Management
Execution of algorithmic trading on securities markets requires a strategic approach. Tactical strategies are used for smaller orders for financial institutions and individuals in order to make money on temporary liquidity or simply for convenience. These strategies aim to control costs and risks involved in the execution.
One way to understand the difference between the classes is to explain how they can interact. A quantitative approach schedules an order by splitting it into several parts, they are executed by a tactical strategy. The tactical strategy applies Smart Order Routing for abstracting away the problems that shares traded on multiple marketplaces.
The quantitative approach aims to schedule the order at given intervals. The reason for the need is simple: if all volume are traded at the same time, the price is bad, if the volume is traded over extremely long time exposed to execution risk if the share price moves. Scheduling is thus a balance between price risk and price impact. The balance is made by means of quantitative analysis.
Quantitative strategies are used for large orders. Ordinary users are buy-side traders who can rely on Trade Account Management for best results. Tactical strategies are also called synthetic order types. A tactical strategy does not place orders over time according to a schedule based on quantitative methods , instead places orders solely based on real-time information from the order book.