Special Reports » OTHER REPORTS » ALGORITHMIC TRADING

— Paul Scott, FIXCITY

Fragmentation in the market has formed a lot of ‘dark pools’ of liquidity, which can only be accessible through electronic means. Algo trading is making the most of them, writes Elizabeth Cripps.

— Owain Self, UBS Investment Bank, European Algorithmic Trading

In the past, many may have leapt on to the algorithmic trading bandwagon by going for the cheap option, but the demands of an ever-changing, technology-led environment have whittled away the wannabes and left only a few elite providers. Owain Self writes on what it takes to stay at the top.

— Toby Bayliss, Citi

Toby Bayliss, head of European self-directed sales at Citi speaks with FT Mandate on the reasons behind the rise in algorithmic trading and future challenges after MiFID implementation.

— Palmer: more arbitrage opportunities

Europe is playing catch-up with the US on algorithmic trading. Paula Garrido investigates what is behind the growing demand and the potential effects on the long/short industry.

Ary Khatchikian, co-founder and president of Portware, looks beyond the convergence hype and finds the industry is making the world of trading systems unnecessarily complicated.

Stavros Siokos, head of European alternative execution sales at Citigroup, looks at choosing an algorithmic trading strategy and heading off the challenges posed by hedge funds.

FTMandate speaks to Jerry Lees, head of Cheuvreux’s Electronic Execution Services, on the rapid evolution of algorithmic trading and how the market could potentially develop going forward.

— Andrew Freyre-Sanders, JPMorgan

The Asia Pacific region, which lags the US and Europe in the uptake of algorithmic trading, is slowly overcoming the particular hurdles to its adoption, says Roger Aitken.

— Ashok Shah,CEO at London & Capital

Ashok Shah, chief investment officer at London & Capital, speaks to FT Mandate about the innovative technology in algorithmic trading and how more sophisticated investors are coming into the market.

— François Banneville, Société Générale

François Banneville, deputy head of global program trading, Société Générale Corporate & Investment Banking, speaks to FT Mandate about the beauty of managed algorithmic trading.

— Nelson: more algo trading in equities

Europe is lagging behind the US in its use of algorithmic trading, but predictions of a larger commitment to the strategy are regarded as too conservative. Tim Cooper reports.

Niall McIntyre, a director with UBS Investment Bank, outlines the reasons why algorithmic trading has not become commoditised and how to find the best in class.

— Stavros Siokos

Stavros Siokos, head of European alternative execution, sales, Citigroup tells FTMandate about educating the buy-side in the best use of algorithmic trading technology.

Kyle Zasky, president, EdgeTrade tells FT Mandate about his firm’s belief that despite the under-utilisation of algorithms on the buy-side currently, usage can only increase.

Brian Carr, chief executive officer of NYFIX Transaction Services speaks to FT Mandate on ways of educating the buy-side on algorithmic trading and move away from the current generic form.

— John Wightkin,QSG

An explosion of algorithmic trading is expected in 2006, but can it deal with the increasingly complex demands? Roger Aitken tracks how it is infiltrating new asset classes and the prospect of customisation.

Electronic algorithmic trading platforms are becoming more and more commonplace, with every provider claiming to offer the best product. Dr Tom Middleton sifts the wheat from the chaff.

FT Mandate talks to Joseph Wald, chief executive officer of EdgeTrade Inc, an independent, agency-only broker-dealer and software developer, about its overarching mission to empower traders.

John Wightkin, managing partner at Quantitative Services Group LLC, discusses some current issues in the algorithmic trading landscape with FT Mandate.

As the foreign exchange market becomes steadily larger, Lee Ratner outlines the various, and increasingly sophisticated, technological solutions on offer to investors.

— Colleen Devine, Citisoft

Although hedge funds and quant shops were the first to embrace algorithmic trading, all projections point to an explosive future growth at a wider level. Roger Aitken looks at its evolution.

Algorithmic trading – it might not trip off the tongue but it has been attracting increasing attention and could be on the verge of crossing into a glorious new era.

— Alasdair Haynes, ITG Europe

Algorithmic trading systems not only result in best execution but can yield some useful cost benefits for users. Roger Aitken reports.

The use of algorithmic trading systems can result in lower trading costs compared with alternative trading methods used by the buy-side, according to new research.

A survey by ITG, the agency broker, revealed that up to 11 basis points (bp) can be shaved off trading costs. However, ITG warned that users should choose their algorithmic provider carefully and that performance levels between brokers can be far from uniform, especially as order sizes increase.

— Tom Middleton, Citigroup

Algorithms enable traders to delegate the monitoring and reaction to market data updates to a computer, leaving them free to work orders that require human intervention. Tom Middleton and Atchen Nathan report.

Algorithmic trading seems to have become the must-have for the buy-side for 2005, with articles appearing in national mainstream newspapers and specialist publications. Algorithms are a sequence of rules designed to solve a problem: in the context of trading, they enable a human being to delegate the scheduling and execution of an order to a computer program, thus automating much of the trading process.

— George Sofianos

The range of execution strategies is wide but choice should depend on order difficulty. George Sofianos and Peter Sheridan outline a framework that could help.

One of the challenges buy-side traders face is how to choose from a large number of execution strategies. The remarkable growth in algorithmic trading and the proliferation of different algorithms increased the challenge. Buy-side execution choices range from the traditional high-touch single-stock executions to algorithmic trading and direct market access (DMA) (see FIGURE 1 download).

— Peter Sheridan

FIGURE 4 (see download file)shows one possible mapping of orders into strategies. As we move from easy to difficult orders (cubes 1 to 8), there are fewer choices and broker-dealer capital becomes more important. The buy-side trader’s first task is to split orders into low-urgency and high-urgency, as discussed above.

Low-urgency trades (especially in large-cap and mid-cap stocks) are well suited to low-touch DMA and algorithmic trading. Low-urgency, small-size orders (less than 0.1 per cent of ADV) should consider small-order spread-capture algorithms like Goldman Sachs’ Piccolo algorithm.

When comparing providers of algorithmic trading it is important to look for high quality data sources, robustness of statistical techniques and a deep understanding of the marketplace.