Buy-side firms are gravitating toward rules-based systems that are often supplied by brokers. These mathematical models analyze every quote and trade in the stock market, identify liquidity opportunities and turn that information into intelligent trading decisions. Why It's Important: Black-box trading is appealing to buy-side firms that measure their trading results against industry-standard benchmarks such as volume weighted average price (VWAP) or the S&P 500 and Russell 3000 indices. From a regulatory perspective, the industry is concerned about best execution. By breaking their large orders into smaller chunks, buy-side institutions are able to disguise their orders and participate in a stock's trading volume across an entire day or for a few hours. More sophisticated algorithms allow buy-side firms to fine-tune the trading parameters in terms of start time, end time and aggressiveness.
展开▼
