Electronic trading techniques are being more commonly used
in futures markets as the buy-side's mandates become increasingly multi-asset.
A new study from research firm TABB Group has found US buy-side
traders are looking for more efficient execution processes in futures and as a
result are embracing direct market access (DMA) and algorithmic trading strategies
for the vast majority of their futures trading.
In 2012, the study forecast US buy-side firms would route
87% of their futures trading through electronic channels.
Trading US futures has historically required little
electronic execution, with market participants mostly placing voice orders. But
Matt Simon, senior analyst at TABB, said as trading increased, volatility
fluctuated, and products evolved, the emphasis on electronic trading tools had
become more critical.
He said as a result, larger buy-side firms were investing in
automated solutions that helped them trade more efficiently – using tools which
could both minimise trading costs and help execute more complex
“Futures trading is a focus point for large buy-side firms –
traditional long-only asset managers, hedge funds and commodity trading
advisors (CTAs) – that are seeing growing volumes and making the requisite
investments into automated solutions to self-direct more of their order flow,
trade more efficiently, minimise trading costs and execute more complex trading
strategies,” said Simon.
Also driving change in US futures markets would be G20-manadated
derivatives market reforms under the Dodd-Frank Act. New regulation was pushing
OTC swaps onto newly-created swap execution facilities (SEFs), and Simon said
as swaps trading became more automated, the ability of traders to use interest
rate futures and other related instruments as part of overall strategies became
“The futures markets are about to become a lot more
competitive,” said Simon, explaining that trading firms running
futures-specific portfolios, including CTAs and hedge funds, will look to
compete with more diversified institutions, refining their execution strategies
to include automated trading tools that make execution practices more
“As buy-side firms become more involved with futures, rising
demand will prompt innovation, competition and a better environment for the
brokerage industry,” he said.