Accumulate/Distribute – Intermediate

The Accumulate/Distribute algorithm can help the investor to discreetly enter large volume orders and execute trades over time with minimal market impact and lesser risk of detection by market participants. It is best used for large-sized orders greater than one million dollars or very low liquidity stocks. Investors can use Accumulate/Distribute to trade stocks, options, futures, and forex products.

This video will go over entering an order with the Accumulate/Distribute algorithm and using some of the features to pause and restart the order under certain conditions.

To access Accumulate/Distribute in Mosaic, click on the New Window area, scroll down to More Advanced Trading Tools, and click on Accumulate Distribute. The Accumulate Distribute window will pop up and is divided into four sections:

• The Algorithm area where the basic parameters of the order are defined.
• The Conditions area where specific conditions about price, position, and market behavior must remain true for the order to be valid.
• The Control Buttons used to start and stop the algorithm and apply changes, and
• The Order Summary which displays real-time order progress.

The investor would like to buy 300,000 shares of Verizon in smaller increments of 1,000 shares at a time, each 45 seconds. If each incremental order is filled immediately, the total order would take three hours and forty-five minutes to fill. They would also like to only buy the stock when it’s within a certain price range. It’s important to note that while in this example the investor is buying, Accumulate /Distribute works with sell orders the same way.

The investor starts by entering VZ in the Financial Instrument section and in the algorithm, area selects Buy, enters 300,000 for total volume and 1,000 for incremental volume. They want to space out the order, so they choose to send it every 45 seconds. The investor is interested in having the orders filled between a certain price range but wants to ensure that they will be buy on the current bid when sent so they choose Relative orders and select 0 for the offset. This way the algorithm will buy even with the bid or in the case if they are selling sell even with the offer. The investor then selects Day for Time-in-force. They then choose to wait for the order to fill prior to sending another order and randomize the time-period and size.

The Accumulate/ Distribute algorithm allows the investor to set conditions that can give up the order permanently or resume if the conditions become true again. The investor can set a price range, have the shares submitted not exceed a percentage of the trading volume, tie the price to the instruments moving average, other instruments moving average.

Using conditions such as tying the order to a price range allows the investor to regulate the  order to be in and out of the market during a price ranges.

In this example the investor is setting the condition that the price range for Verizon must be within a dollar of the current bid and offer for Accumulate/Distribute to send orders. If Verizon falls out of that range, the algorithm will pause, since the investor selected to resume the order if all conditions become true.

 When ready, the investor clicks “Transmit” to start the Algorithm. The algorithm can be stopped and started by using the red stop button and the green start button.

The Accumulate/Distribute algo slices a large order into smaller pieces to avoid detection in the market and allows the investor to set conditions such as a price range that must be true for the algorithm to be active.