by Gord Collins

Buyside Trading for Beginners

The introduction of automated, electronic trading and a number of tools, including algorithmic trading has changed the structure of the marketplace. Integration of securities markets and fragmentation of transactions has enabled buy-side traders a choice of destinations for their executions.

Back in the 1980’s, flooring trading was the norm and trades were generally restricted to single markets due to costs and communications delays. Electronic communication has facilitated a seamless global marketplace which allows buyers to move large amounts of securities quickly and quietly. No longer are brokers in control of information or access to securities markets.

The term market fragmentation is really a misnomer since new electronic networks are actually providing integration or aggregation of trading markets. These “aggregators” create a pool of market databases of liquid securities and what could be better for the buy side trader? This giant collective database of transactions and orders is only analyzed by very efficient technical analysis tools called algorithms. The market is too complex and fast changing for manual attempts to achieve the executions an algorithm can obtain. Algorithmic trading is close to the “action”,and is not distracted by non-trading events, like coffee spills. Responsiveness is unparalleled. The electronic securities trading industry has changed.

However, human judgment is still a key part of effective fund or portfolio management. The role of a broker or consultant has changed however and new tools and techniques are part of their repertoire.

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