Strategy Testing 05 | OKX and AICoin Research Institute: Time-Weighted and Iceberg Order Strategies

OKX, in collaboration with the high-quality data platform AICoin, has launched a series of classic strategy studies aimed at helping users better understand and learn different strategies through core dimensions such as data testing and strategy characteristics, thereby avoiding blind usage.

Time-weighted strategy and iceberg order strategy are two common trading strategies for splitting large orders, particularly suitable for block trading and quantitative trading.

The time-weighted strategy is a method of splitting large orders and executing them over time. Its goal is to evenly distribute large orders over a specified time period to minimize the impact on market prices. The basic principle is to divide a large order into several smaller orders and execute them sequentially at preset time intervals, making the average price of the entire trading process close to the market average price. This strategy effectively avoids the market impact caused by placing a single large order, reduces the risk of slippage, and is usually suitable for traders or institutional traders who wish to avoid excessive influence of market fluctuations on trading prices.

The iceberg order strategy is a method of splitting large orders and placing them in batches, aimed at hiding the actual trading volume. By splitting a large order into several smaller visible orders, it prevents other market participants from detecting the intention of a large trade, thus avoiding drastic market price fluctuations. The basic principle is to decompose a large trading order into several smaller sub-orders, only displaying a portion of them to the market. When one sub-order is fully executed, the system automatically generates the next sub-order until the entire large order is completed. This allows the market to see only "the tip of the iceberg," while concealing the true scale of the order, and is typically suitable for institutional traders or traders with large capital who wish to hide their strength.

In summary, in actual trading, the two different strategies can be chosen based on different usage scenarios to better manage the execution of large orders. By using the time-weighted strategy to disperse time impact and the iceberg strategy to hide trading volume, traders can effectively control market impact and slippage risk while protecting trading intentions. These strategies are widely used in high-frequency trading, institutional trading, and large order execution, especially suitable for use in markets with low liquidity or high volatility.

Comparison of Advantages and Disadvantages

Overall, the time-weighted strategy has multiple advantages in practical applications. First, it has a smaller market impact. By dividing large orders into multiple smaller orders executed gradually according to time periods, it reduces the impact on market prices. Second, it smooths prices. By dispersing trading time, it can avoid drastic price fluctuations caused by large trading orders, thus achieving a more average execution price. Third, it is simple and easy to understand. The strategy logic is relatively straightforward, easy to grasp, and can be used with a single click on the OKX platform. Fourth, it offers high controllability. Users can set prices, time intervals, quantities, etc., according to their own needs, enhancing execution flexibility.

However, its disadvantages are also relatively obvious. For example, execution risk. Since it is executed in batches at set times, if the market experiences drastic fluctuations, it may not achieve the best price, etc. The AICoin time-weighted strategy can randomize time intervals and trading quantities during operation, making the strategy harder to identify and target.

The iceberg order strategy also has multiple advantages in practical applications. First, it hides true intentions. The iceberg order strategy divides large orders into multiple smaller orders, gradually releasing them into the market, effectively concealing the actual scale of large orders and reducing the risk of being discovered and exploited by the market. Second, it executes gradually. Gradual execution of orders helps reduce the impact of large trading orders on market prices, achieving better execution prices. Third, it offers flexibility. The number and frequency of displayed orders can be adjusted according to market conditions, making it highly adaptable.

Of course, the iceberg order strategy also has its drawbacks. For example, liquidity risk. Since only a portion of the orders is exposed, if market liquidity suddenly decreases, there may be situations where orders cannot be executed in a timely manner, etc. The AICoin iceberg order strategy can randomize order positions, order intervals, and trading quantities during operation, making the strategy harder to identify and target.

Theoretical Analysis - Performance of Two Major Strategies in Bull and Bear Markets

First, a theoretical analysis of the performance of the time-weighted strategy in bear and bull markets.

1) Performance in Bull Markets

In a bull market, the time-weighted strategy avoids the impact of large buy orders on coin prices through batch orders, thereby reducing buying costs. This strategy can achieve better excess returns in a bull market.

2) Performance in Bear Markets

In a bear market, the time-weighted strategy is more defensive. By setting limit prices for order execution, it can avoid overpaying in a bear market, thus reducing the risk of losses. Additionally, batch orders in a bear market can better capture low points, increasing profit opportunities.

Overall, the time-weighted strategy has significant advantages in dynamic environments. If the user's primary goal is to disperse the market impact of large orders and execute gradually over a longer period, the time-weighted strategy is a good choice, but attention must be paid to the risks brought by market fluctuations.

Secondly, a theoretical analysis of the performance of the iceberg strategy in bear and bull markets.

1) Performance in Bull Markets

In a bull market, the market is generally bullish, with strong buying power, and trading is active with high liquidity. The iceberg strategy can effectively hide the actual scale of large buy orders, preventing the market from driving up prices, thus allowing for gradual purchases at relatively lower prices. However, if market prices rise rapidly, the exposed small orders may not be fully executed, resulting in missed opportunities to buy at lower prices.

2) Performance in Bear Markets

In a bear market, the market is generally bearish, with strong selling power, and trading is relatively quiet with low liquidity. The iceberg strategy can effectively hide the actual scale of large sell orders, preventing panic selling in the market, thus allowing for gradual sales at relatively higher prices. However, due to low liquidity, the small portions of iceberg orders may be difficult to execute quickly, increasing the risk of unexecuted orders and potentially missing the exit.

Overall, if the goal is to hide the true scale of large orders and avoid market counteractions, the iceberg order strategy is very suitable, especially excelling in high-frequency trading.

Accessing OKX's Two Major Strategies

Currently, OKX's strategy trading offers convenient and diverse strategy options.

The OKX iceberg strategy adopts a more dynamic and flexible order placement method, not merely based on price distance or ratio for order placement. This method can significantly reduce slippage and achieve better concealment of trading intentions. Additionally, the OKX iceberg strategy provides multiple order placement modes, including faster execution, balanced execution speed, and better prices, allowing users to choose according to their preferences and needs. Overall, the OKX iceberg strategy has numerous core advantages, including large order splitting, hiding trades, reducing slippage, and customizable order preferences.

The OKX time-weighted strategy features: large order splitting, timed order placement, and reduced slippage. The benefit of this strategy is that it splits large transactions into many smaller transactions, executing them over time to avoid stimulating the market with a single order; when the price meets the set conditions, it can quickly execute trades.

Moreover, these orders are placed in the IOC (Immediate Or Cancel) mode, meaning they are executed immediately and any remaining orders are canceled. For example, if an order of 2 is placed and only 1.6 is executed, the remaining 0.4 will be immediately canceled, minimizing slippage. The time-weighted order can be applied not only to spot trading but also to perpetual contracts, delivery contracts, and leveraged trading, making its application very broad.

For example, how does the OKX time-weighted order operate?

Taking buying as an example, when the market price is above the order execution limit price, order placement is paused; when the market price is below the order execution limit price, the strategy resumes order placement, calculating the order price based on the current latest buy price and the set price distance, then placing small orders to execute trades. If the price remains below the limit price, orders will be placed at regular intervals until the executed quantity equals the total order volume.

Illustration of Time-weighted Order Buy

Taking selling as an example, when the market price is below the order execution limit price, order placement is paused; when the market price is above the order execution limit price, the strategy resumes order placement, calculating the order price based on the current latest sell price and the set price distance, then placing small orders to execute trades. If the price remains above the limit price, orders will be placed at regular intervals until the executed quantity equals the total order volume.

Illustration of Time-weighted Order Sell

How to access OKX strategy trading? Users can enter the "Trading" section of the OKX APP or official website, then click on the strategy trading mode in the "Strategy Trading" section, and either click on the strategy plaza or create a strategy to start the experience. In addition to creating strategies, the strategy plaza also offers "Quality Strategies" and "Quality Strategies from Strategy Providers," allowing users to copy strategies or follow them.

OKX strategy trading has multiple core advantages, including ease of operation, low fees, and security guarantees. In terms of operation, OKX provides intelligent parameters to help users set trading parameters more scientifically; it also offers graphic and video tutorials to help users quickly get started and master the platform. Regarding fees, OKX has comprehensively upgraded its fee rate system, significantly reducing trading fees for users. In terms of security, OKX has a security team composed of top global experts, providing bank-level security protection.

How to Access AICoin's Strategies?

How to access AICoin strategy trading? Users can enter the "Trading" mode on the right side of the "Market" section on the AICoin homepage, then click on "Smart Order Splitting" to start the experience. In addition to the smart order splitting strategy, the "Community Indicators" also offers many "Quality Indicators," which users can search for and add to "My Indicators."

AICoin provides intelligent parameters to help users set trading parameters more scientifically and offers graphic and video tutorials for quick onboarding. The smart order splitting has advantages such as flexible order placement, order intervals as small as 0.3 seconds, and highly concealed splitting numbers that make it difficult for opponents to monitor.

Disclaimer

This article is for reference only and represents the author's views, not the position of OKX. This article does not intend to provide (i) trading advice or recommendations; (ii) offers or solicitations to buy, sell, or hold digital assets; (iii) financial, accounting, legal, or tax advice. We do not guarantee the accuracy, completeness, or usefulness of such information. Holding digital assets (including stablecoins and NFTs) involves high risks and may fluctuate significantly. You should carefully consider whether trading or holding digital assets is suitable for you based on your financial situation. Please consult your legal/tax/trading professionals regarding your specific circumstances. You are responsible for understanding and complying with applicable local laws and regulations.