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In order execution, a metaorder refers to a large order that is broken down into smaller sub-orders or child orders for execution. It is a technique used to manage the impact of large orders on the market and to achieve better execution outcomes.

The process of executing a metaorder typically involves the following steps:

  1. Splitting: The original large order is divided into smaller sub-orders or child orders. The splitting can be based on various factors such as volume, time, or specific execution instructions.
  2. Timing: The child orders are executed gradually over a specified period of time, allowing for controlled and less disruptive participation in the market. The timing of the execution can be predetermined or dynamically adjusted based on market conditions.
  3. Pricing: The child orders are priced according to a predefined strategy or benchmark, such as the Volume Weighted Average Price (VWAP) or the Implementation Shortfall (IS) benchmark. This helps to ensure that the execution of the metaorder is in line with the desired pricing objectives.
  4. Monitoring: Throughout the execution process, the progress and performance of the child orders are closely monitored. This includes tracking execution prices, market impact, and other relevant metrics to assess the effectiveness of the execution strategy.

By breaking down a large order into smaller child orders, the metaorder approach aims to minimize market impact, reduce transaction costs, and increase the likelihood of achieving a more favorable execution price. It allows market participants to manage the trade-off between execution speed and price improvement.

Metaorders are commonly used by institutional investors, asset managers, and other large traders who need to execute significant volumes while maintaining market efficiency. The use of metaorders requires careful planning, algorithmic tools, and risk management techniques to ensure optimal execution outcomes.

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July 5, 2023
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