30 March 2021 at 6:47 pm #1391Sally GreenParticipant
I would be interested to hear what algo providers Finance Hive members recommend? And also how other members approach selecting which providers to work with?
29 March 2021 at 4:07 pm #1334
The Future of Algos:
– There was a variety in the level of adoption of algos amongst the group, however it was clear that members who aren’t using algos yet are having to seriously consider increasing their usage.
– The shock of Covid has pushed many towards increasing their algo trading usage and members agree this momentum will continue moving forward.
29 March 2021 at 4:07 pm #1333
– Issues arise when you are intervening in trades- as you can then alter the standardisation of the data sets to help demonstrate best execution.
– There are 4 types of algo in the FX space that can be categorised- TWAP, VWAP, implementation shortfall and passive algos. Difficult when looking at comparisons to historical workflows.
– You need big data sets to come to any conclusion of whether an algo is better than another.
– Banks need to clearly differentiate between algos and their execution paths. That way you can have greater knowledge of what you are getting buy-in for.
29 March 2021 at 4:05 pm #1332
– Top considerations
– Flexibility for intervention
– Access to liquidity
– Performance and comparability.
– Servicing – communication with providers
29 March 2021 at 4:05 pm #1331
– 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.
29 March 2021 at 4:04 pm #1330
– Algos can be used to split into smaller trades to help reduce market impact.
– You need to have the objective of the trades defined in order for the algos to be as effective as possible.
– There is room to be doing a lot more with algos.
– Algo wheels are a simple solution to build up clear data sets.
– Algos can free up trader time to concentrate on alpha-generating tasks away from the G4.
29 March 2021 at 4:02 pm #1326The Finance HiveKeymaster
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