As futures commission merchants (FCMs) continue to build out their electronic offerings for hedge funds and long-only asset managers in the US, TABB Group expects algorithmic trading in futures markets to continue expanding faster over the next two years, with a 96% compound annual growth rate (CAGR) from 2011 to 2015.
According to a research report by TABB, "Algos in Futures Markets: Shifting into High Gear," written by senior analyst Matt Simon, this is occurring as institutional buy-side firms are shifting from traditional voice-based or direct market access (DMA) order-execution methods to algorithms with greater levels of sophistication.
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Buy-side traders are beginning to realize that a simple algo is not sufficient for all order types. In order to achieve improved execution, they are evaluating the range of automated tools provided by the leading FCMs and vendors. These client demands are also providing revenue opportunities for brokers, technology providers and the exchanges that must support algorithmic trading.
Simon said: "For buy-side firms to stay competitive, rather than relying on strategies that their head traders do not always understand or find difficult to use, they’re seeking more automated trading capabilities, leading to the use of this new wave of more sophisticated order types."
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