Beyond the Data: Higher speed and lower latency fastest growing priorities for algo users

Wesley Bray dives into the latest data from The TRADE’s Algorithmic Trading Survey – Hedge Funds, delving into the shifting motivations behind algorithm usage across the buy-side, including key areas of focus for hedge funds going forward.

The TRADE recently delved beyond the data to share findings from our annual Algorithmic Trading Survey – Hedge Funds 2024, which indicated that hedge funds were happier than ever with their algo providers.

Holistically, 2024 proved to be positive for algorithmic trading providers, with the overall rating for performance sitting at 5.86 – significantly higher than 2023 and demonstrating the highest survey average from hedge fund respondents since we began tracking their results separately in 2016.

Read more – Beyond the Data: Hedge funds loving their algos more than ever before

Looking at the reasons behind hedge funds’ use of algorithms, as in previous years, elements impacting the desk such as ease of use (12%) and increased trader productivity (10.17%) remained high on the list, despite ease of use declining marginally from 12.03% in 2023.

Similarly, areas which impact execution, such as reducing market impact (10.35%), consistency of execution performance (9.89%) and lower latency (8.36%) all featured in the top reasons for using algorithms.

Rounding out the bottom two reasons for using algorithms are data on venue/order routing logic or analysis (3.89%) and results matching pre-trade estimates (2.50%), with the former down from 5.17% in 2023, while the latter increased slightly from 1.23% last year.

The decline in order routing logic or analysis as a key reason for using algorithms could be linked to advancements in market data feeds, which offer more substantial and real-time information from various venues.

This results in a reduction of the need for hedge funds to analyse venue-specific data sets, as they may already receive a consolidated picture of market dynamics.

As mentioned before, higher speed, lower latency was featured as one of the top reasons for using algorithms in The TRADE’s survey. In fact, the category experienced the largest annual shift, increasing by 2.98%.

The uptick can be attributed to increased expectations of algorithmic complexity from hedge funds, as they expect algorithms to ensure trades are able to be executed at optimal prices.

Read more – Beyond the Data: Algo providers successfully address hedge funds’ cost concerns but execution performance is declining

The TRADE received a record number of responses to this year’s Algorithmic Trading Survey. In terms of geographic distribution, hedge fund respondents were based mainly in the UK (41%), Europe (31%) and North America (21%) with a handful of traders located in APAC (6%) and the rest of the world (1%).

Responses for The TRADE’s Execution Management Systems Survey 2024 are currently open. Buy-side users of execution management systems have until 12 July to comment on the services provided by their vendors. Access the survey here.

Current and previous surveys can be accessed here.