How does the Percentage of Volume Strategy execute trades?

The Percentage of Volume Strategy executes trades by aligning the volume of transactions with the overall market volume. This approach means that the trader executes a specified percentage of the volume traded in the market for a given security. For example, if the strategy indicates that 10% of the market volume should be used for executing trades, the trader will aim to execute trades that amount to 10% of the total trading volume of that security during a designated timeframe.

This method is particularly advantageous for minimizing market impact, as it allows for gradual entry or exit from positions in a way that does not overwhelm the market with orders. By being proportionate to market activity, it helps the trader to blend into the market dynamics rather than creating sudden changes that could adversely affect the stock price.

Other approaches, such as executing based on set time intervals or predefined target prices, do not take into account the real-time trading conditions and market liquidity. Additionally, executing trades randomly within a timeframe could lead to inefficiencies and greater market impact, making B the most strategic option.