Rabindra Mohapatra, Consultant, TCS Financial Solutions
Algorithmic Trading continues to trend upward, to the point that global traders now measure the maturity of a marketplace in terms of its ability to execute algorithmic trades. According to Celent estimates, algorithmic trading represents 70 percent of trading volume in developed markets and 25 to 30 percent in emerging markets worldwide. India, which only began to allow algorithmic trading in 2008, has quickly moved up the ranks with algorithmic trades at 30 percent of total trades on Bombay Stock Exchange (BSE) and 46 percent on National Stock Exchange (NSE).
Established marketplaces now face immense pressure to enable and attract algorithmic trades. Today’s traders are equipped with smart order routing technology to more easily reach alternate trade venues, which means that liquidity can quickly migrate to marketplaces that execute algorithmic trades.
In response to the fast growth of algorithmic trading, buy-side and sell-side market participants now require ever–changing levels of sophistication with their own algorithmic trading and smart order routing capabilities.
Moreover, sell-side traders are being asked by institutional clients to supply the requisite tools to function in a fast moving marketplace. Sophisticated clients with trading operations of their own require direct market access (DMA). They need to craft advanced algorithmic trading strategies that tap into their own insights and approaches to the market. They need to be fully supported by advanced order management capabilities that route orders to the most appropriate marketplace. For their own operations, they need full integration with their internal systems for risk management, compliance and other critical back-office functions.
For the buy side, viable participation in the markets demands a high level of performance across several dimensions and the sell side is expected to deliver the same. Accordingly, providers of algorithmic trading solutions must be able to empower the sell side with a comprehensive tool set that enables the following:
- Consistent execution
- Low impact on prices in the market
- Low-cost trading
- Anonymity to the extent possible
- Flexible technology with full integration
- Support for regulatory compliance
Traders need the flexibility to develop a viable trading strategy that suits their portfolio, trading style, risk limits and objectives. With any trading style, algorithmic or otherwise, traders need to know that their strategies are as unique as possible and that they’re not cookie-cutter variations of strategies being used elsewhere. These strategies have to generate higher returns than the market indexes, drawing upon traders’ specific skills and competencies.
Traders expect to be hands-on with their trading strategies, and that’s why traders are asking to work with the details behind their algorithms. Read how TCS BaNCS allows traders to develop and execute their own algorithmic trading strategies.