Investors looking to execute large volume orders with maximum stealth and minimum market impact will want to consider using the Interactive Brokers Accumulate/Distribute algorithm. Accumulate/Distribute works for many assets including stocks, ETFs, options, and futures.
The Accumulate/Distribute algorithm is currently only available on the Trader Workstation (TWS) and can be accessed in the New Window area under More Advanced Tools located in the Other Tools section.
Accumulate/Distribute is comprised of four sections, the quote panel, the algorithm section, the conditions section, and the order section, and can be run for multiple symbols at the same time. However, the investor must be logged into Trader Workstation for the algorithm to run.
The investor starts by entering the financial instrument at the top left and then defines the order parameters: Buy (Accumulate) or Sell (Distribute), Total Quantity, Incremental Size, Time Interval, Routing Strategy (including directing the order to the IBKRATS), and Order Type. In this example the investor in creating an order to buy a total of 150,000 shares of Verizon (Symbol: VZ) in increments of 140 shares every minute. The order will use IBKR Smart Routing technology and be sent as a Relative Order with a penny offset to the bid.
The investor can also help maintain the stealth of order by customizing time and size parameters in Accumulate/Distribute like randomizing the time period by =/- 20% and size by +/- 55%.
The conditions section allows the investor to select specific requirements that must be met for the algorithm to execute. The algorithm can be set to cancel permanently if any of the conditions are not met or to resume if the conditions become true again. The investor can set price, news, volume, and technical conditions. In this example the investor sets a condition that the moving average for Verizon for the past 10 minutes must be at least 5% less than the moving average for the past 5 weeks.
The conditions section provides flexibility to implement the trading strategy while maintaining control over execution parameters, the investor may want to start simply beginning with basic price conditions and work their way up to more complex conditions as the monitor the effectiveness and performance.
When they are ready to submit the order, the investor clicks on the Transmit button at the bottom of the Accumulate/Distribute tool and the order will be submitted.
The order progress will appear in the Summary section as well as the bottom of the tool and in the Activity panel in Mosaic. In this scenario the Accumulate/Distribute algorithm is waiting for the condition to be come true to send the order.
The Accumulate/Distribute algorithm offers several powerful benefits for investors executing large orders. It enables execution of substantial positions by breaking down large trades into smaller, randomized increments, minimizing market impact and reducing the risk of detection by other market participants. The algorithm provides sophisticated control through customizable parameters such as timing intervals, price constraints, and volume participation rates, allowing traders to execute trades according to their specific risk tolerance and market conditions.
Helpful Links:
Traders’ Academy Lesson: https://www.interactivebrokers.com/campus/trading-lessons/accumulate-distribute/
User Guide: https://www.ibkrguides.com/traderworkstation/accumulate-distribute.htm
Disclosure: Interactive Brokers
The analysis in this material is provided for information only and is not and should not be construed as an offer to sell or the solicitation of an offer to buy any security. To the extent that this material discusses general market activity, industry or sector trends or other broad-based economic or political conditions, it should not be construed as research or investment advice. To the extent that it includes references to specific securities, commodities, currencies, or other instruments, those references do not constitute a recommendation by IBKR to buy, sell or hold such investments. This material does not and is not intended to take into account the particular financial conditions, investment objectives or requirements of individual customers. Before acting on this material, you should consider whether it is suitable for your particular circumstances and, as necessary, seek professional advice.
The views and opinions expressed herein are those of the author and do not necessarily reflect the views of Interactive Brokers, its affiliates, or its employees.
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