The Anatomy of Trading Algorithms

50 Pages Posted: 18 Dec 2019 Last revised: 21 Jan 2021

See all articles by Tyler Beason

Tyler Beason

Virginia Tech

Sunil Wahal

Arizona State University (ASU) - Finance Department

Date Written: September 27, 2020


We study the anatomy of four widely used institutional trading algorithms representing $675 billion in demand from 961 institutions. Parent orders generate hundreds of child orders which strategically employ price, time-in-force, and display priority rules to navigate the tradeoff between trading and minimizing transaction costs. Child orders incur price impact at the time they are submitted regardless of whether or not they are filled, and even when passively priced. Child orders are grouped in strategic runs that oscillate between the aggressive or passive side of the spread. Child-level price, time-in-force, and display choices aggregate up to parent-level trading costs.

Keywords: Institutional Trading, Trading Algorithms, Market Microstructure, Transaction Costs

JEL Classification: G12, G23

Suggested Citation

Beason, Tyler and Wahal, Sunil, The Anatomy of Trading Algorithms (September 27, 2020). Available at SSRN: or

Tyler Beason

Virginia Tech ( email )

Blacksburg, VA 24061
United States


Sunil Wahal (Contact Author)

Arizona State University (ASU) - Finance Department ( email )

W. P. Carey School of Business
PO Box 873906
Tempe, AZ 85287-3906
United States

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