Top 3 Strategies to Improve Electronic Trading

Top 3 Strategies to Improve Electronic Trading

Capital Markets CIO Outlook | Friday, August 27, 2021

With advanced tech-driven strategies, traders and capital market players are optimizing electronic trading.   

FREMONT, CA: Capital market participants, both buyers, and sellers face difficulties on several fronts in today's electronic trade setting. On one front, the regulatory landscape is ever-changing and increasingly onerous. Market respondents involved in any automated, algorithmic, or electronic trading will need to consider the impact of new laws and the actions needed to comply with them. On another front, both the markets and the technology that underpins them are increasingly complex.

Markets are becoming increasingly interconnected, with an increasing number of tools and asset classes traded electronically across various locations. In addition to the difficulties of regulatory and market complexity, companies need to consider how to remain competitive and lucrative in a setting where margins are becoming smaller and thinner, especially in the area of low latency trading. Companies need to look beyond sheer speed in today's electronic markets–where low latency is a prerequisite for achieving a competitive advantage. So what measures can companies take to tackle these problems?

Transparency in Legislation Policies

With much of the new legislation revolving around higher transparency, it is the responsibility of banks and trading firms to provide regulators with deeper information levels, not just about their trading operations, but also about their trading systems. It's not enough for companies to be quick today. They also need to be transparent to remain consistent. This implies that trading systems should be self-reporting and, for instance, should provide precise and meaningful statistics in fields such as latency surveillance. If the regulator asks a company to report on its real latencies, it should be able to define not only where there is latency – whether it is in the software, the hardware or the network – but also under what circumstances the latency changes.

Resolving Complexities

One unintended result of all these new laws is that markets are becoming increasingly complicated, and market members now have to process and act on growing quantities of information in ever shorter periods–already under pressure to be quick. This implies companies are continuously looking for new and innovative alternatives in technology to assist them in navigating through this complexity. So how can the different elements of a trading solution work best together in an effective, reliable, and cost-effective manner, rather than hindering companies in coping with complexity? Trading software requires to be intelligently designed to operate in harmony with the underlying hardware to resolve complexities in business infrastructure so that the application gets the most out of the device in terms of latency, throughput, and access.

Multi-Asset Trading Strategies   

The companies that can manage this complexity are the ones that are going to achieve a limitless advantage in the future. In a multi-asset trade setting in particular, where big information sets need to be processed and connected to various markets. Today margins are small in the room of equities and exchange-traded derivatives, where electronic trading is now comparatively mature. High-Frequency Trading (HFT) companies have been able to obtain important benefits a few years ago by shaving a few fractions of a second off their order stream, but these possibilities are now few and far, so companies need to look beyond sheer velocity to remain competitive. This implies that multi-asset trading strategies are increasingly being adopted. This, however, creates fresh difficulties in the procurement and handling of the market data required for these

With the digital trading sector facing several stresses–from enhanced regulation, sophisticated complexity, and declining margins–staying ahead of the market will pose a challenge for both buyer and sellers in the years to come. With effective strategies driven by technology, companies can significantly reduce both complexity and costs.

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