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access to dark pools . In fact , many traders have gone so far as to say their providers are the “ best ” when it comes to dark pool access . An interesting discrepancy between the quantitative ratings submitted and the qualitative feedback provided by buy-side traders . Customer support received the highest score this year ( 6.03 ) and was the only category to receive a rating above 6.00 ( very good ), followed by ease of use ( 5.97 ) and increased trader productivity ( 5.94 ).
The geographic distribution of respondents in this year ’ s survey was similar to that in 2023 , with increases in regions such as North America ( 13 %) and APAC ( 5 %), however , traders based in the UK ( 34 %) and Europe ( 48 %) continue to dominate the pool of respondents . In terms of asset classes , 94 % of all longonly managers responding to the survey trade equities , whereas other instruments traded electronically included ETFs ( 57 %), fixed income ( 37 %), FX ( 37 %) and listed derivatives ( 23 %). It may be important to mention here how long-only managers are measuring the performance of their algorithms . The majority of traders report that they use VWAP TCA ( 34 %), implementation shortfall TCA ( 32 %) takes second place , followed by liquidity capture ( 20 %).
Of course , when it comes to why buy-side traders use algorithms , the top reason is fairly simple : ease of use . Looking over at figure 2 , it is clear to see that over the past three years this answer has consistently taken the top spot , and this year , once again it is followed by reducing market impact ,
Figure 2 . Reasons for using algorithms (% of responses ) Feature |
2024 |
2023 |
2022 |
Ease of use |
12.51 |
12.18 |
12.25 |
Reduce market impact |
11.41 |
11.43 |
12.03 |
Consistency of execution performance |
10.71 |
10.02 |
10.74 |
Increase trader productivity |
10.60 |
10.64 |
10.87 |
Greater anonymity |
7.99 |
7.67 |
7.85 |
Higher speed lower latency |
7.48 |
6.58 |
6.87 |
Flexibility and sophistication of smart order routing |
7.19 |
8.14 |
7.35 |
Better prices ( price improvement ) |
7.07 |
6.94 |
7.94 |
Algo monitoring capabilities |
6.58 |
6.29 |
5.67 |
Customisation capabilities |
6.10 |
6.45 |
6.33 |
Lower commission rates |
5.77 |
6.95 |
6.77 |
Data on venue / order routing logic or analysis |
3.96 |
4.86 |
3.93 |
Results match pretrade estimates |
2.64 |
1.84 |
1.39 |
although note that this response is down marginally from last year . The next response is new to take third place - consistency of execution performance .
Once again results match pre-trade estimates and data on venue / order routing logic or analysis makes little impact on why buy-side traders choose to use algorithms . Having stayed bottom of the chart for the last three years , this will come as little surprise to our readers .
What is noteworthy is that lower commission rates have taken a significant downward
Figure 3 : Average number of providers used by AUM ( USD billions )
turn , falling 1.18 points . This could be due to saturation , in which the market may already have a large portion of traders using algo strategies – a case where lowering commission rates may not necessarily incentivise new adoption .
The positivity of 2024 continues when it comes to a firm ’ s AUM and the average number of algo providers they use . Firm sizes across the board have recorded an uptick in the number of providers they use , with the exception of two . Firstly , firms who manage assets of between
AUM ( billions USD ) 2024 2023 2022 Up to 0.25 2.82 2.55 3.00 0.25-0.5 2.50 2.43 2.22 0.5 to 1 2.91 2.90 1.83 1 to 10 3.04 3.88 3.32 10 to 50 5.14 4.19 4.53 More than 50 4.77 4.99 4.43 Not Answered 3.90 3.28 3.51
74 // TheTRADE // Q1 2024