While automation and technology play an essential role in modern day trading, Edward Dickson, head of dealing at Winterflood Business Services highlights the importance of retaining human experience and continuous refinement to ensure efficiency and client success.
Trading, on the face of it, is a simple affair. One person wants to sell, one person wants to buy – that’s what makes a market. As a trader, the job is to facilitate that as quickly and efficiently as possible.
Gone now are the days of people passing each other bits of paper. Technology means that most dealing happens under a straight-through processing (STP) paradigm – trades occur with basically no human intervention whatsoever, whereby the key benefit is speed. Where dealing desks used to message or call a number of brokers or liquidity providers to find the best prices, our systems can automatically contact more providers and do this in seconds.
For modern trading operations, this enables faster, cheaper reactions, and at greater scale. Many now rightly consider themselves as a fintech. So, the role of the dealing team is just to mind the machines, right?
Wrong. Having the right people is still absolutely essential for two broad reasons – one perhaps obvious, the other not so much.
The hands-on trades
I’ll preface the first with a startling stat. In our case, 98% of our trades occur on a STP basis, so, just 2% breach the parameters whereby my team will want to be handling them in a hands-on manner. However, that 2% of trades accounts for about a third of the total value of business transacted each month (circa £1bn).
These are, obviously, not momentum-based day trades. These are large orders, often with complex requirements, that might take two or three days to complete. Experience here is critical – extracting the right information from clients means knowing the right questions to ask.
These kind of high volume, high value, or specialist trades require judgement on which counterparties to approach. A client might want to set specific limit levels, restrict trading times or deal in illiquid stocks or across jurisdictions.
And while execution desks don’t make investment decisions, they are often asked to provide market expertise on trading approaches. For example, a discretionary fund manager looking for a certain yield on an investment grade instrument might request a list of viable options.
Overall, the value of an experienced, high-touch desk in this context is pretty obvious.
And the rest?
The second reason is more subtle: there’s really no such thing as a ‘hands-off’ trade. The other 98% is not just about smart order routing or algo trading. It still needs servicing in meaningful ways.
Oversight is constant. Is there enough liquidity in electronic channels? If there’s only one person quoting a line of stock, why is that? Trading desks stay close to counterparties, requesting additional pricing where needed building new relationships, switching new counterparties on, making sure that liquidity is always there.
Moreover, every day’s trading will be analysed automatically; but also reviewed by experienced professionals. Anomalies and outliers will be investigated and processes refined.
Even the parameters via which trades might get escalated for human intervention must be constantly under review. In stable periods, thresholds maybe loosened, and, in more volatile times they are tightened.
That’s when experience counts again. Market conditions don’t always behave as models expect. In volatile times – as we saw recently after the tariff announcements from the US – the need for human oversight comes more acute. You can’t teach a computer to react to something that’s never happened. Instinct still matters.
In short, even the most sophisticated trading infrastructure needs to be constantly serviced, adjusted, calibrated.
Having an automated car may work for most situations, but you still want to know that a driver can take back the wheel when needed.
Every client is a full-service client
Why is it important? Well, take it back to that original premise – one person wants to buy. That person is the client.
The job of the trading desk is to make sure the client gets the best price; and the combination of technology, human experience and continuous refinement is how that happens. Because ultimately, every client deserves a full-service experience, and that’s something technology alone can’t deliver.