[ A L G O R I T H M I C T R A D I N G S U R V E Y ]
Hedge funds rely on algos to trade majority of portfolios in market stress
Results from The TRADE ’ s 2021 Algorithmic Trading Survey revealed that hedge funds are relying more on algorithms to trade the majority of their portfolios , with dark liquidity seeking strategies the most popular .
The global equity market went on an unprecedentedly wild roller-coaster ride in 2020 . After a dramatic sell-off in March of last year , markets quickly recovered and major indices continued reaching record highs . The volatile market conditions , high trading volume and drive for rapid digital transformation to cope with the remote working environment have all contributed to the uptick in algorithmic trading .
Despite the initial shock , investors haven ’ t shied away from the market ; on the contrary , not only have institutional investors been actively engaging in the market , but the rising trading flow from retail investors has also created a notable impact on the total market . Under the current macro-economic environment , with historic low interest rates , government stimulation and the soon-to-be reopened economy , a higher adoption rate of algorithmic trading in the equity market is to be expected to help traders achieve best execution and optimal liquidity options .
In 2021 , the average score of hedge fund respondents to the Algorithmic Trading Survey was 5.82 — a consistent increase from the 2020 score of 5.77 and the 2019 score of 5.72 . These scores provide an insight into the qualities that the industry values , such as usability , and reflect the confidence that the sell-side can provide relevant and high-quality liquidity , including access to dark pools , alternative trading systems and systematic internalisers in Europe and the US . The survey reveals that the most impactful features of algorithms are ease of use , customer support , dark pool access , increased trader productivity and speed ( Figure 1 ).
Following 2020 , when the category received the highest score of 6.02 , “ ease of use ” again scored the highest of all categories at 6.06 . “ Customer support ” follows at 6.04 in this year ’ s survey . It is interesting to see “ ease of use ” increase its score year-on-year over the past four years , underlining the importance of user-friendly front ends and streamlined technology in the modern trading environment . Notably , “ increased trader productivity ” recorded
64 // TheTRADE // Summer 2021