I personally use Percent of Volume for orders in my linked IBKR accounts. First, it’s one of the few IBKR algos supported by p123 (adaptive is not one of them). But it tends to favor more immediate execution than VWAP orders. Keep in mind that different algos may have different benchmark prices that they are trying to achieve or beat. VWAP orders are designed to achieve or beat the VWAP benchmark price over the order’s duration. For day orders, the VWAP order will likely spread execution over the entire day’s volume curve. Algos like Arrival Price or POV are benchmarked against the current price. Others like Target Close are trying to achieve the closing price.
So why do I favor more immediate execution? There are a couple reasons, but first check your strategies and see how they react to “Price for Transactions”. If “Next Open” strongly outperforms “Next Close”, you certainly have an argument for trying to achieve the arrival price over the closing price. But what about VWAP price? It’s not currently available in p123, so I view “Average of Next Open, Close, and 2X High” as a poor man’s proxy for the VWAP price. Again, if “Next Open” outperforms, you have an argument for more urgency. Maybe there’s some short-term alpha there, maybe you’re just benefiting from more immediate execution of long orders in the prevailing tide of rising markets. Either way, I don’t argue with the data.
For trading in my IRA, more urgent execution is even more important. Since only limited margin is available, I can’t simultaneously execute all my buy orders and my sell orders – I need some sells to fill first. If I were to send my sell orders as Day VWAP orders that executed over the entire trading day, I may not be able to submit the last buy order until the next day.
All that being said, my use of POV orders is more of a marriage of convenience than anything else. There are several things I do not like about IBKR’s POV algos.
- They only participate in IBKR’s ATS (dark pool). Roughly 40-45% of US trading is off-exchange, typically on various brokers’ dark pools, but the IBKR ATS is only ~2% of that off-exchange volume. These are aggregate market statistics of course, but you’re missing out on a lot of liquidity.
- They do not participate in opening or closing auctions, which can be about 10% of volume. I haven’t checked but I would expect their VWAP orders to participate.
- Even with attempt to never take liquidity set as an option, they don’t seem to do a great job of getting passive fills.
- IBKR exposes an “attempt to match block trading volume option” which p123 does not support. It doesn’t appear to be documented anywhere, but presumably the default behavior is to not follow off-exchange trading volume reported to the TRF, which means the POV order is potentially tracking the 55-60% of lit volume, which leads to…
- POV orders feel slow to fill. My executed volume is sometimes well under my target percentage of market volume.
I do plan to explore other execution options, though it’s not my lowest hanging fruit at the moment. Fox River has had a very good reputation for execution, so they’re at the top of my list to try.