Kevin T Gonzalez#72

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What are execution algorithms (TWAP/VWAP/POV) and how do FX traders use them?

Execution algos slice large orders to minimize market impact and slippage. TWAP (Time-Weighted Average Price) distributes evenly across a time window—useful in steady liquidity. VWAP (Volume-Weighted Average Price) adapts to historical intra-day volume curves—common around London/NY overlaps. POV (Percent-of-Volume) posts a fixed % of current market volume—more responsive but riskier in thin books. FX specifics: fragmented venues mean smart order routers ping multiple liquidity providers, dark pools, and ECNs. Settings include aggression (cross spread vs. passively rest), child-order size, and anti-gaming protections. Pros: better average fills, reduced signaling. Cons: opportunity cost in fast trends, exposure to short-term volatility. Tips: align algo choice with goal—TWAP for discretion, POV/VWAP for liquidity spikes; avoid algos during data releases; use post-trade TCA to recalibrate parameters. Mastering execution often adds more edge than tweaking indicators.