Here you go brother. Courtesy of
www.cfaexamlevel3.com (table at bottom): sh@t is gold
“Algorithmic trading, or quantitative/rules-based, computer governed trading, is often used to break a large trade into smaller pieces in order to hide the trade, minimize risk, and reduce costs. In other words, all algorithmic strategies look to minimize market impact for the trader’s benefit. Currently 30-40% of global trading volume is algorithmic.
Generally speaking algorithmic trading identifies patterns and capitalizes on small mis-pricings to execute trades. That’s why it tends to perform better in trending markets. There are a few different classes of algorithmic trading systems.
If any of this shows up on the exam expect it to be about one multiple choice question’s worth or one small short answer, probably focusing on selecting the most appropriate strategy based on market conditions or a trader’s needs.
Logical participation strategies: Trade with market flow to escape notice. Strategies include tying to VWAP, TWAP, or % volume. These tend to be slower in terms of execution relative to our next category.
Implementation Shortfall (arrival) strategies: Complete a trade while attempting to minimize trading costs as defined by our implementation shortfall equation (so it factors in both implicit and explicit costs). As a consequence, trades tend to be front-loaded and occur earlier in the day. Why? Because trading earlier minimizes opportunity costs. Implementation shortfall strategies are especially useful when an entire portfolio must be traded.
Other algorithmic strategies include opportunistic strategies to capitalize on mis-pricings, passive trading strategies, and reserve orders that look to achieve negative trading costs.