Algorithmic Trading Currency Or Derivatives?
Technological advancements has revolutionized the way assets are traded. Investors place orders via computer rather than chatting to a broker on the phone. Trading floors have principally been replaced by electronic trading platforms. The nature of order execution has changed significantly too as many market participants now employ algorithmic trading, oftenoutlined as the utilization of PC algorithms to control the trading process.
Starting from near nil in the 1990s, by 2007 AT is responsible for roughly 1/3 of trading volume in the U.S and is anticipated to account for maybe half of trading volume by 2010. The serious activity generated by algorithms threatens to take over exchanges and market data suppliers, causing significant upgrades to their infrastructures.
Buy-side companies were happy to use pre-packaged ‘black-box’ algorithms. But the playing field has changed. Alpha now goes to the firm with the best algorithms – and what’s considered ‘best’ changes by the day. Only the companies that can introduce new algorithms swiftly will stay ahead. The future guarantees more of the same, with the algorithmic landscape dominated by people who have the best, inventive, evolvable algorithm and algorithmic trading secrets.
Once the stomping ground of only the largest institutions, algorithmic trading is now entering the mainstream, causing an algorithmic trading arms race. In 2002, having algorithmic capabilities was enough to generate alpha.
