After years of sitting on the sidelines, the buy side finally is in the algorithmic trading game. Algorithmic trading, or computer-directed trading, not only cuts down transaction costs, it also allows investment managers to take control of their own trading processes. Although hedge funds, many of which use highly quantitative trading strategies, have used algorithms for years, traditional buy-side firms now are being targeted as the best opportunity for algorithmic trading growth. In fact, Aite Group, a Boston-based consultancy, expects traditional buy-side firms to account for 30 percent of all algorithmic trading by 2008 — nearly double the current figure. With that growth comes opportunity. The buy side currently is being bombarded with solutions for algorithmic trading implementations. Everyone from bulge-bracket firms to agency brokers to vendors is offering some alleged remedy, creating confusion for a marketplace full of asset managers unseasoned in the trading strategy.
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