Trading data and tools after COVID-19

Head of buy-side trading at Refinitiv, Quentin Limouzi, considers how trading data and tools employed during the COVID-19 crisis can help traders continue to manage risk and compliance, and spot new investment opportunities.

Quentin Limouzi, head of buy-side trading, Refinitiv

The impact of the COVID-19 pandemic on financial markets has left many traders feeling like they are flying blind. They are dealing with high levels of market volatility and evaporating liquidity, resulting in record volumes of trading. Even with some hints of improvement, no one really knows how long this crisis mode will last. But it does signal a new era dominated by price-driven trading.

From passive to active trading

It’s a traders’ market. There are lots of opportunities to trade not just on fundamentals but also on price. As a result, we’ve seen trading move away from primarily passive investments to more actively managed funds. The reason: The agility and flexibility of active management is more equipped to handle market volatility and give traders an edge.

This traders’ market is characterised by a shortened holding horizon, for example, when a stock falls 60% and then afterwards bounces 35% . It allows an active trader to get in and out of a stock multiple times in the span of a few days or weeks, rather than relying on mid- to long-term projections and fundamentals to decide whether to trade long or short.

It’s important to buy and sell what’s right – right now. This means having the appropriate data and tools to respond when the opportunity arises.

How can trading data and tools help? 

Because of the volatility, our clients saw more than double the usual trading over our Refinitiv REDI execution management system (EMS) platform in March, at the peak of the crisis.

The ease with which traders were able to manage risk, compliance and new opportunities in the disrupted environment signals a new era. So, even when the world gets back to their offices, it’s likely that many of these shifts will become the norm.

Read on for some of the new ways of working that will likely stick around.

1. Remote trading – Timing will remain key. And with how traders are able to invest, the flexibility offered by Refinitiv REDI EMS and cloud-based platforms like Refinitiv AlphaDesk mean that it doesn’t really matter if you are home or at the office. Traders can leverage a range of workflow solutions and execution tools to access liquidity and execute a large number of trades in smarter ways. The information you need is there – when you need it, from wherever you are.

2. Portfolio management– Since Refinitiv acquired AlphaDesk, we now have an end-to-end solution that will carry you from trade inception to execution with data and automation easily accessible in a single place. REDI EMS provides real-time information, access to powerful electronic trading tools and quick access to the market so you can trade multiple stocks at once. Not only are you able to mitigate risk, but you can also take advantage of price distortions and stay an active trader.

3. Data and analytics – Reliable data and the right integration are key to help make quick trading decisions. Recently, we worked with Joel Sebold from our Refinitiv Labs team. We analysed price behaviour and depth of LOB (limit order book), for a near month E-mini future contract, comparing January (pre-volatility spike) and March (mid-volatility spike).

The density, mean spread and trading aggressiveness comparison between January and March all point to a market that moved from tight and dense, to wide and illiquid in a very drastic manner. This, combined with significant increase in trading volumes, resulted in very large intraday price swings.

These data points could be very valuable to a trader or portfolio manager looking to assess current liquidity conditions which drive price impact. With our analytics and Labs team, we are constantly looking at new ways to display and distribute analytics to improve the trader’s experience, with the buy-side trader in mind.

4. Multi-asset capabilities – In many cases, active managers can also switch investments around different asset classes. The COVID-19 pandemic has seen moves on all asset classes, all at once, and the ability to reallocate funds from one asset to an-other could certainly have helped mitigate risk or make winning trades. We believe the trader of the future will trade all asset classes, and we are building our buy-side trading systems to solve that need.

5. End-to-end workflows– An end-to-end workflow allows traders to trade smarter and faster with REDI EMS. With direct links to portfolios, profit and loss statements, and risk and compliance systems, it is a robust investment solution that caters to both long-term investors and active traders. This versatility and scalability are crucial, especially in times of volatility, and should help drive buyers’ decisions in the future.

Watch — The Future of Trading: People and Machines

6. The tools to capture the big deal – In this environment, there are specific opportunities. But they don’t necessarily last very long. Traders and investment managers need the right information to act fast. That means having auto-mated tools to alert you at just the right moment so you don’t miss out on the opportunity to capture that big deal.

Execute trades confidently with Refinitiv’s multi-asset trading solutions covering pre- to post-trade workflows with comprehensive real-time data, efficient execution and reliable post-trade service.

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