Execution management system provider TradingScreen has released preliminary findings of its first industry-wide analysis of algorithmic trading in the global cash market.
Described as largest multi-broker, multi-client review of algorithmic trading to date, by Philippe Buhannic, CEO at TradingScreen, it covers the activity of more than 200 hedge funds and other asset managers worldwide who among them execute more than a million trades using more than 100 different algorithms regularly from all the leading brokers.
The preliminary findings relate to the types of trades being executed by buy-side traders with algorithms, the types of algorithms most widely used as well as the actual performance of algorithms versus more traditional trading approaches.
There are two key findings highlighted by the preliminary analysis. Perhaps the most important for all market participants is that algorithms were found to generally outperform similar trades completed without the use of algorithms. Performance in this case relates to the absolute result achieved in terms of execution prices and the consistency of these results.
“Around 40% of all trades passing through the TradingScreen systems are being executed using algorithms. Even so, some market participants see them as simply productivity aids. Our analysis suggests that they are much more than that and can actually improve execution results significantly,” comments Michael Chin, president and head of global sales at TradingScreen. “The findings lend independent, objective support to decisions by the world’s most effective equity traders to dramatically increase their use of electronic trading tools as well as the value being delivered by the broker/dealers who have invested most in this area.”
The second finding discovered that even straightforward algorithms are able to deliver varying results. Direct comparisons between algorithms are complex, but some were found to consistently perform better in certain market conditions than others.
TradingScreen is currently finalising a service called TradeMetrics, allowing clients from the buy-side to compare their performance against peers by trading segment and that of the algorithms they use or provide, against comparative data and market conditions.
TradingScreen believe this solution will allow buy-side and sell-side clients to quantify the benefit they achieve from the investments being made in ever more sophisticated products and services. “Buy-side clients in particular have been asking for some time that we help them understand the dynamics of their trading performance and the value they are delivering to the investment process. TradeMetrics will position TradingScreen to respond to this client demand,” says Chin.