IS

Example of Implementation Shortfall

The IS (Implementation Shortfall) trajectory is designed to minimize the difference between the arrival price (the price at order submission) and the average execution price. It dynamically adjusts the execution schedule to balance market impact and timing risk, making it particularly useful in volatile or illiquid markets where slippage is a concern.

How Implementation Shortfall Works

• Traders set an aggressive execution profile, front-loading a larger portion of the order to reduce timing risk.

• The engine opportunistically places limit orders to optimize costs but will use market orders when necessary to maintain execution speed.

• The trajectory follows a VWAP (Volume Weighted Average Price) approach with Alpha Tilt set to 1, ensuring faster initial execution while balancing cost efficiency.

When to Use Implementation Shortfall

• Volatile Market Conditions – Ideal for reducing slippage when price movements are unpredictable.

• Urgent Trades – Best for scenarios where immediate execution is prioritized over cost.

• Illiquid Markets – Helps traders navigate limited liquidity while minimizing timing risk.

Implementation Shortfall Limitations

• Higher Market Impact – The aggressive front-loading increases the likelihood of influencing market prices.

• Potentially Higher Costs – Frequent use of market orders may result in higher taker fees.

• Less Suitable for Passive Strategies – Not ideal if the goal is to minimize visibility and maintain a low-profile market presence.

This trajectory is best suited for traders who need fast execution in volatile or illiquid markets, ensuring reduced slippage while managing execution costs.