IB VWAP versus MOC

M

Maverick2608

Has anyone tested IB VWAP versus MOC?

The positions that I need to unwind generate no return during the day. I just need to unwind the positions with the least amount of risk and friction. If I unwind the positions in the morning, I minimize risk. However, morning liquidity is light and thus creates more friction/slippage. For that reason I want to wait until the evening or use IB VWAP

IB VWAP has the advantage of unwinding the positions during the day - thus decreasing risk. However, I am not sure whether the average price execution using IB VWAP is worse compared to MOC. I am aware that commission is higher using IB VWAP versus MOC.

Assume that the size of the positions is not high enough to impact MOC.

Thank you.
 
I think you are asking for an apples vs oranges type of comparison. Whether MOC or VWAP is better entirely depends on the specific trading dynamics in each stock and the general market sentiment (for example, are markets strongly uptrending or rather range bound).

If markets strongly trend up and you buy then a VWAP gets you on average a better price than MOC, if you sell then MOC is better than VWAP, of course subject to statistical averages.

I actually would highly question that larger size is better executed via VWAP than MOC. A lot of large orders are priced at the close and especially if you trade against the prevailing trend MOC most likely gets you filled at much better prices than VWAP even in large size.


Maverick2608 said:
Has anyone tested IB VWAP versus MOC?

The positions that I need to unwind generate no return during the day. I just need to unwind the positions with the least amount of risk and friction. If I unwind the positions in the morning, I minimize risk. However, morning liquidity is light and thus creates more friction/slippage. For that reason I want to wait until the evening or use IB VWAP

IB VWAP has the advantage of unwinding the positions during the day - thus decreasing risk. However, I am not sure whether the average price execution using IB VWAP is worse compared to MOC. I am aware that commission is higher using IB VWAP versus MOC.

Assume that the size of the positions is not high enough to impact MOC.

Thank you.
More...
 
volpunter said:
I think you are asking for an apples vs oranges type of comparison. Whether MOC or VWAP is better entirely depends on the specific trading dynamics in each stock and the general market sentiment (for example, are markets strongly uptrending or rather range bound).

If markets strongly trend up and you buy then a VWAP gets you on average a better price than MOC, if you sell then MOC is better than VWAP, of course subject to statistical averages.

I actually would highly question that larger size is better executed via VWAP than MOC. A lot of large orders are priced at the close and especially if you trade against the prevailing trend MOC most likely gets you filled at much better prices than VWAP even in large size.
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Thank you, I cannot predict market sentiment - others might succeed at that.

I - like you - believe that MOC will result in better execution on average. I have a lot of experience using MOC. However, because VWAP will unwind the positions throughout the day, VWAP imply lower risk since my average exposure will be lower.

That is why I am curious whether anyone has tested how VWAP stacks up against MOC and how guaranteed VWAP stacks up against best efforts lower cost VWAP.
 
When I looked at the pricing, I wasn't willing to pay the premium for guaranteed VWAP, except perhaps under exceptional circumstances (where I would probably trade it myself instead). If you're comfortable with sizing for your MOC orders and they aren't too big, I wouldn't have a strong preference between MOC and VWAP. If you're not hedged for whatever you're selling, that would argue for unwinding it sooner via VWAP on risk grounds.
 
MoreLeverage said:
When I looked at the pricing, I wasn't willing to pay the premium for guaranteed VWAP, except perhaps under exceptional circumstances (where I would probably trade it myself instead). If you're comfortable with sizing for your MOC orders and they aren't too big, I wouldn't have a strong preference between MOC and VWAP. If you're not hedged for whatever you're selling, that would argue for unwinding it sooner via VWAP on risk grounds.
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I actually justed checked pricing on guaranteed VWAP at the same time you were writing this comment. I'm sorry I didn't do that before posting. The exchange fee of USD 0.017 is simply too high to make it attractive - especially on lower priced stocks.

I would then much rather prefer MOC or do what I do now - i.e. work my way out using simple limit orders during the morning.
 
I have a lot of experience designing vwap algorithms with quantitative overlay for myself when i traded cash equity as part of an internal hedge fund. I believe one cannot beat guaranteed vwap on average as one will always react to volume,traded, rather than anticipate. With quant overlay (basically measuring momentum and predicting the continuation if such) my best performance on average was beating guaranteed vwap by 11 basis points. I later on replicated the strategy and sold it to a sell side dma algo team.

Moral of the story is that you are better off trading guaranteed vwap if it is only a few basis points more expensive. I don't know how good IB'S algo is but if they charge more than 15 basis points more than best effort then I would reckon going with best effort to be cheaper over time. But again You should ask IB fir some statistics. They should publish what their best effort tracking error is.



Maverick2608 said:
Thank you, I cannot predict market sentiment - others might succeed at that.

I - like you - believe that MOC will result in better execution on average. I have a lot of experience using MOC. However, because VWAP will unwind the positions throughout the day, VWAP imply lower risk since my average exposure will be lower.

That is why I am curious whether anyone has tested how VWAP stacks up against MOC and how guaranteed VWAP stacks up against best efforts lower cost VWAP.
More...
 
There are brokers on the NYSE that work orders similar to a VWAP. There is no guarantee, but they can often do better than the VWAP because they can match on all prices. That means when they are matching the bid or offer, they can get a small match on each trade. You don't have to wait for it to be your bid or offer to participate.
 
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