Child Order Distribution
Child order distribution is the tactical process of sending individual, smaller orders into the market to fulfill a parent order. This distribution is governed by algorithms that determine the size, timing, and venue for each child order.
By scattering these orders, the algorithm avoids creating a single, large visible footprint in the order book. Distribution strategies can be passive, aggressive, or balanced, depending on the urgency of the trade.
The goal is to maximize the fill rate while minimizing the price impact on each segment. Advanced systems may use machine learning to predict the best time to release each child order.
This granular approach is the engine behind efficient, low-impact institutional trading. It ensures that the overall execution strategy is executed in a coherent, orderly fashion.