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Algos Considerations:
– The hardest consideration is being able to get a sufficient amount of data to build an effective comparison between risk transfer and an algo. Especially when you can’t trade the exact same trade to analyse.
– By looking at the benchmark for the fixed rate, you can then weight the average on that benchmark.
– Human intervention is key to be able to manage control of the trade when beginning your journey.
– Other roadblocks are around information leakage and market impact.
– You have to do your due diligence and build relationships with your providers.
– We all have obligations under best execution to show continuous improvement and innovation. Algos, are therefore another tool in the tool kit.
– Do not view algos as black boxes.
– You need to make a responsible assessment for your chance of success.
– In order to gather effective data, you need to make your algos comparable to each other.