Study Notes:
Interactive Brokers offers two VWAP or Volume-Weighted Average Price order types: A Best-Efforts or a Guaranteed. The best-efforts algorithm is available for all US stocks and included with the Pro platform while, the guaranteed is only available for large cap stocks and is available at an extra charge. The volume-weighted average price (VWAP) represents the average price based on both volume and price a stock has traded throughout the day. An investor can also use the VWAP algo if they want to attain the volume-weighted average price during a specific period.
During this video, we will walk through how to enter a VWAP order. The VWAP best efforts algorithmic order type is available for US stocks and futures as well as some foreign equities. It can be accessed on Mosaic, Classic TWS, or Mobile for IBKR Pro clients.
In Mosaic, the investor can enter an order into the order entry panel, for example AAPL. Choose Buy or Sell, enter a quantity of shares to trade, and click on the white triangle to access all available order types. Scroll down to IBALGO and a list of all available IBALGOS will appear in a side car.
Click on VWAP and the Advanced Window will appear showing Destination equals IB:VWAP in the upper left-hand corner. Directly underneath is the Algo parameters area. VWAP will be shown in the drop-down box followed by Max Percentage. This is the maximum percentage of the Average Daily Volume the order will comprise, and the investor may enter a number from 0.01 to 50, representing .01% to 50%. Entering 5 will ensure the order will not surpass 5% of the Average Daily Volume (ADV).
Continuing down is the Start Time and End Time. These values are the time the order will start and end regardless of whether entire quantity has filled unless you check the box bellow next to “Allow Trading past end time.” If no values are set, then the start time will default to the start of market trading and the end time will default to the end of market trading. An important note when selecting a start and end time is this: The system will confirm acceptability of the time using the prior day’s trading volume. If the period defined is too short the investor will receive a message with recommended time adjustments.
The investor may also select whether to “Attempt to never take liquidity.” If checked, the algo will make the best efforts to not hit the bid or lift the offer if possible. An investor may check this to potentially avoid liquidity-taker fees and earn liquidity-adding rebates. However, checking the box may result in the order deviating further from the VWAP benchmark and it is important to note that with our best-efforts algorithm there are times when taking liquidity is unavoidable.
There are times when the investor may want to speed up the rate of trading if they put a limit order in and the price is approaching the limit or potentially gapping through it. The investor should check the box when they feel the chance of the order becoming non-marketable is high and it may help the order get a better fill rate.
The final parameter for the investor to choose is if they want the order to trade when the price becomes more aggressive than a particular value. For buy orders the algorithm evaluates the bid and for sells it evaluates the ask price.
When satisfied with the order parameters exit out of the Advanced window and click submit on the Order Entry panel. An Order Confirmation window will appear with a summary of the order and parameters.
When ready click Transmit, and the order will appear in the Activity Window with “VWAP (IB)” in the Type column.
The VWAP or Volume-Weighted Average Price best efforts algorithm trade type is designed to achieve the VWAP price from the time you submit the order to the end time or close of the market.
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.
Disclosure: Order Types / TWS
The order types available through Interactive Brokers LLC’s Trader Workstation are designed to help you limit your loss and/or lock in a profit. Market conditions and other factors may affect execution. In general, orders guarantee a fill or guarantee a price, but not both. In extreme market conditions, an order may either be executed at a different price than anticipated or may not be filled in the marketplace.
