Market participants do not need to be told that they are working in an era of Big Data. They experience it every day. However, developing an appropriate response is going to change the daily experience in a number of important ways. The relationship with technology will inevitably change. Internal relationships will be altered. And analytics will dominate any list of required capabilities.
Not only do traders need one pipe for market data, they may also demand direct feeds from specific local markets they cover with speed and high performance as absolute requirements.
With the shift in direct market order flow to an increasing number of dark pools, an order's time to market is more critical than ever. The trading community is monitoring and measuring latency every day, and they'll put their trust only in the highest-performing, highest-speed service providers to get their orders done.
On the regulatory front, a handful of new policies are set to affect the options market and will likely enhance transparency, execution, and market data. Meanwhile, the cash equities business has hit a level of maturity and we are now trending toward better tools for block crossing and less resource intensive methods of trading.
According to Ralph Edwards, we now see options traders moving from a tactical to a more strategic use of these tools, further blurring the lines between equity and options trading.
The challenges of creating algorithms for FX trading are many, with no central limit order book, depth of book or volume information to draw upon. Firms are using new market microstructure knowledge and market data to move away from the historically manual FX processes to more automated, anonymous electronic trading.
In the past, options traders expected to pay for capital in order to get timely executions with limited market impact. Today, more investors are making use of electronic platforms in hopes of bringing commissions down. But there is a growing class of trade that requires particular skill in options trading along with the right relationships in the options markets.
What if you're super sensitive to trading costs? What can you do about stocks you see moving away from you? While many algorithms handle these scenarios quite well, particular situations require an algorithm that's customized to your needs.
Observations about the differences between lit and dark venues can be monitored over time, helping traders adjust and refine their strategies. This information also makes a critical difference in how order routing logic gets embedded into trading tools.
ITG's research confirms that transaction costs vary significantly with market conditions (volume, volatility, trade imbalance) and present evidence that order size, arrival times, execution horizons, and patterns (intensity) of trading are endogenous variables that are managed by brokers and, to some extent, by portfolio managers.