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Overall Algo Trading analysis

Based on the inputs from seminars from experts at trading summit and various conferences here we are analyzing overall industry stand for algorithmic trading.

Global market (US & Europe region) trend is towards dark pool liquidity based algorithm more. Dark pool serves purpose of bulk trading volume and liquidity while adding anonymity benefits and less market impact. Whereas most of the emerging markets, dark pool liquidity based algorithms are not initiated yet. Overall in Asia trend for liquidity based algorithm is less.

Predetermined benchmark based algorithm like Price (Implementation shortfall – IS), volume (POV) and ratio (Pair-spread trading) are widely getting used over dynamic benchmark based algorithms like Price in line, market on close.

Trend for schedule based algorithm VWAP (Volume weighted average price) is still on in global as well emerging markets. Here one can get benefit of less transaction cost and market impact. This gives high possibility of complete order execution.

Algorithmic trading performance get measured based on the parameters like cost, speed, anonymity, execution consistency, market impact and improvement in trader productivity.

Survey tells list of reasons for using algorithmic trading are Internal crossing (In global or developed market only) , traders productivity, anonymity, ease of use, price improvement, execution consistency, commission rate, customization and speed.

With these benefits adaptability towards algorithmic trading is increasing but one cannot miss out risk monitoring to meet regulatory guideline.

What is missing ingredient in algorithmic trading is traders “gut feeling”. The next generation algorithm will be able to communicate to the trader, to let the trader know what is going on dynamically, and allow the trader to interact with algorithm.

References:

• FPL HongKong Trade Summit 2013
• An Introduction to Algorithmic Trading: Basic to Advanced Strategies (Wiley Trading)

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