The coefficients have been designed by ATMonitor to facilitate a quantitative dialogue about how and where relevant why, traders and/or algorithms have actually traded. The coefficients are flexible enough to be used for consideration of all trading, whether electronic or not.

There are two K ² ™ coefficients each consisting of two numbers and designed to describe a feature of a trading strategy. The coefficients can be used to describe a single order or a series of parent orders (whether this is a description of the outcome from repeated use of an algorithm or the repeated trading by an individual human trader). The two coefficients are;

α = the description of the propensity that orders have been executed in such a way that they could have improved the executed price (i.e. contribute to alpha generation) but not whether the actual execution did improve the executed price

ψ = the description of information leakage propensity (i.e. the extent to which it is likely that the order(s) could have been ‘gamed’ but not whether they were in fact gamed)

Anyone can calculate K ² ™ coefficients for themselves. The model is proprietary but can be licensed at no cost by prospective users from ATMonitor. What individuals or institutions typically cannot do is compare their
K ² ™ coefficients with those of others, whether brokers, algorithms or buy-side traders.

To learn more about licensing the K ² ™ coefficients model or having your algorithmic trades’  K ² ™ coefficients compared with others please contact us.

 

Data Comparison

For clients who want a direct ‘price comparison’ of the performance of their benchmarks against others using similar tools ATMonitor does offer a transaction cost analysis service specifically geared to reviewing the performance of algorithms. Typically the nature of information about algorithmic trades is much richer and more accurate than that often used in transaction cost analysis. As such it requires different tools and techniques to provide the most useful insight.

To learn more about licensing the data comparison service offered by ATMonitor please contact us.