The pros and cons of algorithmic trading
Prepared by Tom Middleton of Citigroup
STRUCTURED ALGORITHMS
This class of algorithms is designed to trade as close as possible to a common trading benchmark.
VWAP (volume-weighted average price) This is probably the best-known and most commonly used trading benchmark. Over a given trading interval, the VWAP is the ratio of the total notional traded and the volume. VWAP algorithms use volume profiles to minimize variance, and limit order strategies to optimize performance.
TWAP (time-weighted average price) This is similar to VWAP, except that the volume profile is constant.
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