Algorithmic trading is the act of automatically executing trade orders in response to market conditions or set rules. It is the use of high-frequency, high-throughput computer programs to execute trades based on pre-programmed rules. There are two main types of algorithmic trading: market-neutral and directional. While there are commonalities between the two, they are optimized for different trading strategies. Therefore, an automated trading system can be used for either market-neutral or directional strategies. This article discusses the current state of the algorithmic trading market and its growth prospects in the near future. It also highlights some of the key companies involved in the market and their respective market shares.
Why Algorithmic Trading?
Automated trading systems allow investors to eliminate the human element from investment decisions. This can reduce human error, improve consistency and improve the viability of a trading strategy. In addition, using an automated trading system can help increase profits by taking advantage of better returns generated by computer algorithms compared to those generated by humans. Overall, automated trading can reduce the risks associated with trading by removing the emotion and the unpredictability of human behavior.
Benefits of Algorithmic Trading
The main benefits of algorithmic trading include the ability to execute trades with high frequency, especially across multiple time scales. High-frequency trading (HFT) is the practice of making markets often through automated trading systems. This can include both market-neutral and directional trading. The ability to execute trades with high frequency across multiple time scales can help improve the efficiency of investment portfolios by reducing the amount of capital required to generate returns.
In addition, using an automated trading system can help reduce the amount of time required to make investment decisions. This can help investors maximize the amount of time they can spend on other important matters, such as running a business or managing family responsibilities. Humans are generally poor at making investment decisions that require detailed analysis of long-term prospects. Therefore, removing humans from the equation can reduce the overall time needed to make decisions and allow more people to invest. A fully automated investment strategy can also reduce the overall cost of running an investment portfolio.
Key Trends in the Algorithmic Trading Market
Increased Popularity of Automated Trading
As the benefits of algorithmic trading become more apparent, its popularity is expected to grow. In fact, existing automated trading systems are expected to see increased interest from investors and end users. This is due to the ability to reduce overall trading costs by automating more trading strategies, such as market-neutral automated trading.
Increased Regulation of Automated Trading
New EU regulations are expected to increase the need for automated trading in the near future. Specifically, the new regulations will require trading platforms to store data about the trading activities of their users for at least six months. In addition, the regulations will require electronic trading platforms to store data in a standardized format. Therefore, it is likely that the growth of automated trading will be accompanied by an increase in demand for standardized trading platforms.
Who is Leading the Algorithmic Trading Market?
The global algorithmic trading market is highly diversified across geographic regions. In terms of market shares, the United States and Europe dominate the global market. North America is the largest region in terms of both end users and investment volume. Nonetheless, the continent faces some competition from Asia, which is increasingly becoming a hub for trading automated financial instruments.
Major players in the global algorithmic trading market include Bloomberg, Microsoft, Trading Technologies, Renaissance Technologies and Thinkorsgate. The top five players in the global market are collectively responsible for close to 50% of industry revenue.
Key Companies in the Algorithmic Trading Market
Companies operating in the global algorithmic trading market are mainly into market-neutral automated trading. The top five players in the market are BBG, Microsoft, Tradewave, Tradingsim and Trading Technologies. The key players in the market are BBG, Microsoft, Tradewave, Tradingsim, Trading Technologies and Renaissance Technologies.
Algorithmic trading is a rapidly growing segment of the global trading industry. The market is expected to grow at a CAGR of over 16% from 2017 to 2022, according to a report by Technavio. The report analyzes the market across different segments, such as end users, investment volume, and market share, to identify key trends. The report also reviews the key players in the market and their market shares.
The key findings of the report are summarized below:
The global algorithmic trading market is valued at around USD 4.3 billion in 2017, and is projected to grow at a CAGR of over 16% from 2017 to 2022.
The market is segmented on the basis of application, such as equity trading, bond trading, currency trading, and derivatives trading.
The market is also segmented by product type, including exchange traded funds (ETFs), investment management services, platforms, and algorithms.
The market is also segmented by end user, including investment advisors, pension funds, and high net worth individuals.
In addition, the report covers various regional markets and their growth prospects. The report also analyzes the market across different geographies, such as North America, Latin America, Europe, Asia Pacific, and Middle East & Africa.
The Technavio analysts discuss the key drivers that are likely to fuel the growth of the algorithmic trading market in the near future. Some of the key factors driving the growth of the market include an increase in the demand for automated trading, an increase in the use of ETFs and an increase in the adoption of directional strategies.
Read the full report: https://www.technavio.com/report/algorithmic-trading-market-report-2019-va-GNW8
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