What are the benefits of merging trading across asset classes?
The key benefits of merging the trading function to be multi-asset have to come down to efficiency and scale, both as it relates to the execution of trades but also on how the trader operates when observing markets, providing market colour and looking at data. Technology is at the forefront of this movement and the electronification/automation of many parts of the execution function allow the human element of trading to be more focused on larger, more complex trades that carry greater risk and as the role of trading develops, into other areas of the overall asset management business.
Key among them being the provision of market colour and adding to the idea generation process. The trader of today has to be able to distil a vast amount of disparate information and filter it in a bespoke fashion to the needs of individual portfolio management teams. The benefits of doing this across asset classes allows traders to build a broader view of the market each day, allowing them to spot market correlations and offer market color at a wider scale, fostering insights and knowledge-sharing across various market landscapes.
On the execution side, having the experience of trading across multiple assets and liquidity landscapes allows a trader to apply key learnings from one asset class to another, you are constantly learning and increasing your adaptability which gives you more tools at your disposal when trying to achieve best execution.
It’s true to say that alongside the role of trading, the structure of portfolios is adapting to contemporary trends and fewer portfolios today are truly ‘single asset’, as portfolio managers look to access more markets or hedge their exposures in different ways, it helps for them to have a single access point to all these markets rather than a more fragmented approach.
How does the skillset of a multi-asset trader vary from a single asset trader? And why are more desks merging asset class trading now?
Multi-asset traders must be able to adapt to multiple different liquidity dynamics on the fly. That requires the ability to utilise many different execution methods, be it electronic, RFS, voice, bartering, understanding the mechanics of algos. The full range is required, and you are required to be an expert at all of them. Each corner of the market is different in its etiquette and liquidity and as a trader it’s imperative that you can switch seamlessly between them and be able to take a view on what works best in each scenario to achieve what is best for your underlying clients.
Alongside the role of pure execution, traders of today must wear multiple hats, especially when executing across multiple asset classes. Traders must have both a macro and micro view of the market at any given time to allow them to engage with teams in conversations on macro strategy, advise them on market microstructure, as well as monitor and analyse TCA data on a pre- and post-trade basis.
On why more desks are merging asset classes, clearly the ability for traders to execute across more asset classes at greater scale than ever before presents an effective strategy for cost-cutting. By amalgamating trading across asset classes firms can streamline operations and make savings through consolidation and this is as true in trading as it is for any other role. It also comes as no surprise as the transformation brought by automation in the trading landscape has redefined the role of the buy-side trader and has created time and space for traders to delve into more intricate tasks that demand human intelligence, adaptability, and strategic thinking.
How can you ensure a best execution and a specialist service for each asset classes on a multi-asset desk?
To provide a specialist service to all internal stakeholders across a multi-asset desk it is imperative that the trader has the ability to tap into the vast wealth of resources that our trading partners provide us. There is an incredible pool of talent on the sell-side across sales, traders, strategists and research and as the trader it is your job to filter this information individually to the needs of each and every team that it will add value to internally. Even with the increased presence of technology within our execution toolkit, the human element of trading is as important as ever, a strong relationship and open dialogue allows our partners to understand our execution styles and markets helps us to achieve best execution at scale.
Operating in this way also provides traders with a more expansive view of the market. Market moving catalysts can come from anywhere and being on top of the information flow allows you to put this information in front of those who matter as fast as possible. This isn’t possible when it is coming from outside your silo.
By trading cross-product, traders can also provide a better high touch service for trades that come as a package. If trade and hedge are performed by the same trader for example, it is far more likely that any potential errors at the trade creation process are caught, actually enhancing the overall control framework.
How could the multi-asset trading process be further automated/optimised to make it more efficient?
Optimising the multi-asset trading process can of course be realised through further advancements in technology. While there are several providers looking to provide solutions in this space, the search for true multi-asset OMS and EMS platforms has not yet reached market consensus. This, alongside further improvements in rules-based auto-execution building rules across platforms will allow traders to focus even further on the areas they can provide the greatest value, ultimately better servicing our clients.