medium · Market Microstructure
A VWAP algorithm targets 10% of market volume each hour over a 6.5-hour trading day, implying a target child-order size of 10,000 shares per hour if average hourly volume is 100,000 shares. In the first hour, actual market volume is 200,000 shares (double the forecast).
How should the VWAP algorithm adjust its execution rate for the remaining 5.5 hours to stay on track with the VWAP benchmark?
- Increase the child-order rate in remaining hours to compensate for the slower-than-expected first-hour fill
- The algorithm needs no adjustment because VWAP automatically rebalances
- Reduce the child-order rate in remaining hours, because the algorithm already executed 10% of 200,000 = 20,000 shares in hour 1 (double the original plan), and must reduce future participation to avoid over-executing relative to the total order size
- Cancel the algorithm and switch to a TWAP strategy
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