Technology provider ConvergEx has released an algo designed for pre-market trading on US venues, a new strategy that it says will help buy-side traders execute large-sized trades before markets open.
Pre-market trading – the ability to match orders on exchange before the official market open – is characterised by higher volatility and larger spreads compared to continuous trading, factors that increase during earnings announcements and company news. However pre-market trading lets asset managers execute trading ideas before markets open if a match is found.
ConvergEx’s new strategy uses historical and live market data to execute and will save traders time, according to Scott Daspin, managing director in the Global Electronic Execution group at ConvergEx.
“There is significant volume that trades outside of market hours and portfolio managers wanting to make trading decisions overnight can execute before the open. This algo lets buy-side traders automate trading to focus on preparing for the open,” Daspin said.
The pre-market algo, which ConvergEx said is the first of its kind, tracks displayed market volume to slice orders across venues active in the pre-market.
“The algo is based on a methodology we developed for optimal access to displayed liquidity on exchanges during the pre-market period, which takes into account information leakage and average daily volumes when executing,” Daspin said.
Pre-market trading is similar to after-hours trading and is available on selected exchanges in the US, letting traders cross orders on lit markets from 08.00 until 09.30, and the ConvergEx algo will be available to traders from 7.30.
Participation from market makers and electronic communication networks is voluntary during the pre-market, which means there can be less liquidity and inferior prices compared to the open market.
Daspin added another key to the pre-market algo was improving trader workflow as the volatility of pre-market trading necessitated manual inputs for calculating average daily volumes and limit orders, functions ConvergEx sought to automate with the algo.