But with regard to where we are today, who are the main players in the electronic trading space? Hedge funds?

Well, ten years ago maybe. Back around 2000, the hedge funds really were the big players. But go back further, maybe to the mid-nineties, and you’ll find that the early adopters of this technology were the passive quant traders, who were looking to trade their portfolios more effectively and more efficiently. These guys were the real algo trading early adopters.

Throughout the nineties, these quant traders, together with retail players, really drove the electronic trading market forward. Then, around the turn of the millennium, the hedge funds started to pick up on it. Now we are at the stage where it’s pretty prevalent across the industry.

Many players now use algorithmic trading strategies to search for short-term arbitrage opportunities. The markets have evolved significantly over the last twenty years. Equities in particular are traded at a much faster pace than they were. Because response times have become so much quicker, stock prices move around more quickly so you have much greater intra-day volatility now than you did back in the eighties and nineties. Traders have to be incredibly nimble and fast moving to respond to indications of interest and trading opportunities.

If you look back to the eighties when stocks traded in fractions (eighths, quarters, etc), typically a stock’s daily range might have been less than a dollar. But now, three, four, five dollar ranges are not uncommmon.

Traders need to be able to see opportunities and act on them, hence the growth in algorithmic trading strategies.

For more information, listen to the Algo Trading Podcast

Related posts:

1. Forex Trading For Newcomers Forex is a platform for currency trading. Forex means Foreign...
2. Problems Associated with High Frequency Trading Retail investors and the general investing public might have heard...
3. Online Option Trading The power of the internet allows a single individual to...

Related posts brought to you by Yet Another Related Posts Plugin.