Business Analysis - November 05, 2004

Algorithmic Trading: Perceptions and Challenges

Increasing competition in the algorithmic trading space and prospective phenomenal growth in Direct Market Access (DMA) have led to several challenges for the buy-side and the sell-side. After analysing the situation from various perspectives, it is interesting to observe the disparity in interests and perceptions of both sides of the industry. Perhaps is it the right time for broker-dealers to take a fresh look at their clients’ needs and re-examine their strategies for order execution and/or business segmentation.

Algorithmic trading services are the latest innovation to be promoted by broker-dealers. Almost every month there is a conference on the subject, or the announcement of a major broker-dealer acquiring competitor service provider to build market share. Away from the news spotlight, broker-dealers have been frenetically hiring programmers and quantitative analysts to form the basis for algorithmic trading services.

In the article below, Gordon Baker and Shashi Tiwari of Edhec-Risk Advisory explore the prevailing industry realities of algorithmic trading and the challenges for the future.

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