The TradingScreen analysis covered activity of more than 200 hedge funds and other asset managers worldwide, that between them execute regularly more than a million trades using more than 100 different algorithms from all major investment banks and brokers. The preliminary findings relate primarily to the types of trades being executed by Buy-Side traders with algorithms, the types of algorithms most widely used and, most interestingly, the actual performance algorithms versus more traditional trading approaches.
The TradingScreen preliminary analysis highlights two key findings. The first, and arguably most important for all market participants, is that algorithms generally outperform similar trades completed without the use of algorithms. Out performance relates both to the absolute result achieved in terms of execution prices and also the consistency of those results. "Around 40% of all trades passing through the TradingScreen systems are being executed using algorithms. Even so some market participants see them as simply productivity aids. Our analysis suggests that they are much more than that, and can actually improve significantly execution results" said Michael Chin, President and Head of Global Sales at TradingScreen. "The findings lend independent, objective support to decisions by the world's most effective equity traders to dramatically increase their use of electronic trading tools as well as the value being delivered by the broker/dealers who have invested most in this a rea."
The second finding is that even the more straightforward algorithms can deliver varying results. Direct comparisons are complex, but it seems clear that some algorithms consistently perform better in certain market conditions than others. TradingScreen is finalizing an approach that would enable it to allow the Buy-Side client to benefit from its research by comparing their performance against peers by trading segment and that of the algorithms they use or provide, against a unique universe of comparative data and market conditions. This will allow Buy-Side and Sell Side clients to quantify the benefit they achieve from the usage investments being made in ever more sophisticated products and services. "Buy-Side clients in particular have been asking for some time that we help them understand the dynamics of their trading performance and the value they are delivering to the investment process. This service called TradeMetrics will position TradingScreen to respond to this clie nt demand", commented Chin.