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In this Article
Methods Supported by Theorem
Example of Results
Comparison Chart
| ⚠️ | Trade Managers are solely responsible for running a fair and equitable allocation methodology. |
Software and tools are designed to meet a trade manager's needs, but the manager is at all times responsible for ensuring fair and equitable allocations and meeting any compliance, regulatory or legal requirements.
Standard practices may or may not be suitable for a particular manager.
Methods Supported by Theorem
Theorem supports Low to High, High to Low, Best Fit, and Average (APS) methods when allocating trade prices to accounts or aliases.
When allocating fills that have multiple prices to two or more allocation accounts, the Price Method commands the allocation algorithm on how to assign prices to the various accounts.
High to Low (HTL) and Low To High (LTH) assign trade prices based on a sorting of all of the trade prices against the account numbers.- High to Low assigns the first account the highest price, and continues sorting through remaining accounts in alphabetical order assigning trade prices from lowest to highest price.
- Low to High performs the opposite to high to low; the first account receives the lowest trade price, continuing so that the last account receives the highest price.
All trades always follow the same sort (either high to low or low to high), including buys and sells.
Average (APS) assigns the volume weighted mathematical mean price to all accounts.
Theorem supports on exchange decimal APS. The mean is calculated to 10 decimal points.
Theorem does not support trade price rounded APS. This style of averaging determines the mean price and allocates to the nearest exchange price increment.
Best Fit (BF) determines combinations of fill prices to arrive as close as possible to the mean.
Theorem supports a linear and heuristic methodology for determining the combination of trades.
When the Use Incoming setting is turned on, the combination of fills will adjust to the mean of the ending position instead of the prices in the allocation.
Simple Example Using Two Accounts and Three Fills
Shares: Account A (60%) and Account B (40%)
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Fills: Bought 10 at aggregate average price of 94.25
| Time | Quantity | Trade Price |
| 9:00 AM | BUY 3 | 94.50 |
| 9:02 AM | BUY 6 | 94.00 |
| 9:30 AM | BUY 1 | 95.00 |
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Allocation Results
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Low to High Assign the lowest price to the first (sorted alphabetically) account, and so on. |
||
| Allocated Acct | Allocated Qty | Allocated Price |
| A | 6 | 94.00 |
| B | 3 | 94.50 |
| B | 1 | 95.00 |
|
High to Low Assign the highest price to the first (sorted alphabetically) account, and so on. |
||
| Allocated Acct | Allocated Qty | Allocated Price |
| A | 1 | 95.00 |
| A | 3 | 94.50 |
| A | 2 | 94.00 |
| B | 4 | 94.00 |
|
Best Fit Knowing that the average of all fills is 94.25, determine the combination of fills that gives each account this average. |
||
| Allocated Acct | Allocated Qty | Allocated Price |
| A | 3 | 94.50 |
| A | 3 | 94.00 |
| B | 3 | 94.00 |
| B | 1 | 95.00 |
|
Average Pricing Assign the weighted average of all fills to each account. |
||
| Allocated Acct | Allocated Qty | Allocated Price |
| A | 3 | 94.25 |
| B | 3 | 94.25 |
- The allocated quantity is always the same: 6 to account A and 4 to account B. The quantity and price algorithms are independent of each other.
- All methods except APS use the filled trades so that the total quantities per fill price in the results are exactly the same:
- 6 @ 94.00, 3 @ 94.50, and 1 @ 95.00
- The APS price method always produces synthetic trades. Every account receives one and only one trade that does not have a fill price:
- Share X Quantity @ Volume Weighted Average Price
- All allocations must be the same side (buy vs sell). If buys and sells are allocated together, they will be allocated sequentially based on the earliest fill time; if the earliest fill time is a buy, then all buys will allocate before all sells.
Comparison Chart
Note: This comparison is based on opinion by Theorem's operational trade flow experts.
Trade managers, investors, and operators may have different requirements and parameters that dictate the suitability of various price allocation methods. This chart compares some common considerations based on the standard implementation of each price method