Pre-Trade Analysis
: "Pre-Trade Analysis
Feb 04, 2005
URL: http://www.wallstreetandtech.com/showArticle.jhtml?articleID=59301259
The Issue Defined: Brokers are developing pre-trade analytics in connection with their algorithms to help buy-side customers determine the best algorithms to use. These tools will help traders calculate the expected market impact of potential trades.
Why It's Important: Today, buy-side traders want immediacy and pre-trade analytics are tools that can be used at the trader's desktops rather than having to call a sales trader for the information. These analytics determine, for example, that a particular trade can be executed with less market impact. In the past, post-trade analytics were all that were available-analysts and portfolio managers would look at past trends to determine potential future outcomes. There is more emphasis on pre-trade analytics today because of the increase in electronic trading; instead of sharing assumptions on the market impact of a trade with a sales trader, buy-side firms have to interact with a black box.
Where the Industry Is Now: Virtually every bulge-bracket brokerage firm has developed or is developing pre-trade analytics to work with their algorithmic-trading strategies. Today's pre-trade analytics add expected market impact and historic correlations to various benchmarks in a more interactive application. However, while pre-trade analysis is the Holy Grail of transaction-cost analysis (TCA), it is not where traders need it to be: Pre-trade analysis works better on multidirectional basket trades (with buys and sells, longs and shorts), as opposed to individual stocks; and it needs real-time information, captured by the OMS. Often, the real-time data isn't available because brokers break large trades into multiple orders and give the buy side an average price for the entire execution rather than a separate price for each piece.
Focus in 2005: Brokers n"
Feb 04, 2005
URL: http://www.wallstreetandtech.com/showArticle.jhtml?articleID=59301259
The Issue Defined: Brokers are developing pre-trade analytics in connection with their algorithms to help buy-side customers determine the best algorithms to use. These tools will help traders calculate the expected market impact of potential trades.
Why It's Important: Today, buy-side traders want immediacy and pre-trade analytics are tools that can be used at the trader's desktops rather than having to call a sales trader for the information. These analytics determine, for example, that a particular trade can be executed with less market impact. In the past, post-trade analytics were all that were available-analysts and portfolio managers would look at past trends to determine potential future outcomes. There is more emphasis on pre-trade analytics today because of the increase in electronic trading; instead of sharing assumptions on the market impact of a trade with a sales trader, buy-side firms have to interact with a black box.
Where the Industry Is Now: Virtually every bulge-bracket brokerage firm has developed or is developing pre-trade analytics to work with their algorithmic-trading strategies. Today's pre-trade analytics add expected market impact and historic correlations to various benchmarks in a more interactive application. However, while pre-trade analysis is the Holy Grail of transaction-cost analysis (TCA), it is not where traders need it to be: Pre-trade analysis works better on multidirectional basket trades (with buys and sells, longs and shorts), as opposed to individual stocks; and it needs real-time information, captured by the OMS. Often, the real-time data isn't available because brokers break large trades into multiple orders and give the buy side an average price for the entire execution rather than a separate price for each piece.
Focus in 2005: Brokers n"
posted by eecalvin @ 8:41 AM
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