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can manage risk much more efficiently.
Stress resilience and reliance on each other helps a lot, we are always open to stepping in and helping out where necessary to prevent situations when one might be overwhelmed and stretched too thin and not able to handle the trade with the utmost precision and best execution.
On the whole how would you say the fixed income trading sphere is changing when it comes to traders’ day to day? I previously discussed the electronification of the fixed income markets a while back and it still seems to be evolving in that direction. We see the rise in various protocols that are designed to streamline and systematise trading, if not for the whole fixed income market but for the most liquid segments of it. A lot of new vendors pop up here and there with the ambitions to help develop the market tape and enable electronification of the primary markets. If they were to succeed in the near future, that would significantly help the markets elevate some of the processes. Adaptability really comes in handy here, as mentioned previously being on top of the newest developments and learning quickly is essential.
The way I see the fixed income trading sphere changing is embracing data. Our desk has developed and built a range of data analysis tools to help us make decisions more efficiently. On a day-to-day basis we leverage our data analysis capabilities to detect the market sentiment, identify technical factors that affect trading in our markets and look at ad-hoc reports to evaluate our performance and efficiency. And I am sure we are not the only desk to embrace and harness data.
But it must be said that one thing that won’ t change and will be a part of our day-to-day is being ready to face the situation where volatility spikes up, data becomes unreliable and the only way to trade is through the phone with the counterparties you’ ve spent years developing partnerships with. In times of panic and chaos people switch off their screens and even the smallest of trades sent via the electronic platforms impact the markets in a big way.
What ' s the future outlook for algos in fixed income, is it something which is on your radar? Algos have been a great source of liquidity in fixed income markets- the rise of alternative liquidity providers has proven so. In liquid markets and smaller size trades, algos can price quite aggressively and help traders achieve best levels. A lot of sell-side banks have developed their own algos to try win and increase their market share in these small and liquid trades.
Algos are on our radar, and they are very helpful in our day to day when it comes to sourcing liquidity. Given desks now move towards a more systematic way of trading, utilising algos will be fundamental in building these processes moving forward. The trades then can be divided into low and high touch allowing traders to focus on more challenging and less liquid parts of the market.
Where algos are not efficient is in high beta segments of the credit markets and illiquid instruments, where traders are very protective of their positions and do not post their axes, reporting data on the trades can be deferred for considerable periods depending on the regulatory regime, prices are stale and there is just not enough of the amount outstanding in the market. This is where we will always need to rely on our experience, relationships and careful risk transfer to achieve the best outcome.
Active fixed income has been less dependent on algos just because of a nature of our business, but where algos are most embraced is passive fixed income. Daily flows, smaller trade sizes and investing in benchmark names is what needed to be properly utilising the power of algos.
“ No matter how much experience one thinks they might have, there is always an element of unpredictability, especially in the line of work we do.”
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