Mostly… fixed income and cross product eTrading

November 25, 2007

Im a trader, not an investor (shamon)

Filed under: 2015, etrading — holky @ 6:09 pm

This post arises from me once back in the old days referring to a colleague as a trader, for him to reply in horrified manner “my dear boy, I’m not a trader, I’m an investor”. 

There is a thought that electronic trading and algorithms will do away with the buyside execution desk- and in terms of traditional order flow that’s probably right: why pay someone to take an order from the investment manager then just type them into a system that will route the execution to the right venue? ..when the investment manager armed with oms/ems with decent routing rules could just as easily “release” the order and let the system get on with its thing.

While this may indeed be the end of the traditional execution desk as we know it, is this actually the first step on a new path for the execution desk holding a more powerful (more recognised) position within a fund’s alpha generation team?  

In terms of evolution, those on the execution desk should be glad to start relinquishing their responsibilities re vanilla order routing m’larky to order routing rules instead, in order to concentrate on quantifying their alpha contribution by becoming the electronic trading experts- sure knowing and building those routing rules for one, but then by really exercising algos to pick up/get out of a position in the most opportune manner.   This is already happening to a point in “exchange” markets where there is a big market exposing algorithms to customers, but what about the other markets? – in fixed income still manually routing orders, and any voice trades put through dealers/agent to work in whatever way will continue to take power (value?) out of the execution desk – so surely all forward-thinking execution desks should really want to be able to electronically pushing orders through algorithms and systems direct, so they are not just twiddling the brokers knobs, rather they own the knobs being twiddled, right?

Fast forward on that thought, then does the shift towards controlling the machine give power to change the stock selection criteria?  So while the “investment” piece decides what attributes need to traded in/out based on the duration of the liability (or however you’re going to run the fund) and the executioner “just” executes these instructions to best advantage, what happens when this is all electronic and the executioner has opportunities to daytrade their way in and out of a position (within a universe constrained however you see fit to avoid breaching overall exposure limits etc?) in order to add some alpha with that short term risk?   While there is still a differentiation between the investor (long term view) and trader (short term view) , perhaps the response you receive if you call someone the wrong one would not be quite so horrified?

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