The Trader of Tomorrow
This means that in order to align the execution of a buy order with the drivers of the buy decision, a buy-side trader must have strong analytical skills. If his firm is big enough to have the resources, he may have his own internal quant team, his own analysts and his own algorithm programmers to build strategies and routing logic to optimize his trading. He's got the technology to capture and analyze trade data and the mathematicians to build the algo models. Next-generation head traders are responsible for the success of these efforts, and the larger the asset manager, the more global the initiative.
[Does Every Buy-Side Trader Need To Be a Quant? Read Advanced Trading's interview with Tim Grant, managing director of fixed income technology provider Benchmark Solutions.]
To be sure, most buy-side trading desks do not have the kinds of resources to do this work on their own. They simply don't have the capacity or the bandwidth to capture and analyze their trade data by fund and by manager and to use TCA results as inputs into trading strategies, let alone to incorporate portfolio construction variables into real-time order parameters and routing logic. But they must have the skills to work closely with their brokers to get as close to the optimal trading solution as possible.
There is some fine work being done today — on the sell side, at a handful of the large buy-side firms and by a few independent software providers — on aligning the investment implementation with the investment decision-making process. That work requires diligence, persistence and an analytical mind-set. As the buy-side trading desk becomes increasingly quantitative in nature, the nature of the trader must adapt.
Tomorrow's trader will have a set of quantitative skills yesterday's traders didn't have. After all, for at least one major buy-side desk, the last one who didn't was hired five years ago.
Laurie Berke is a principal with Tabb Group. She has more than 20 years of experience in the equity and derivatives trading and technology arena. Prior to joining TABB, she was a director at ITG. firstname.lastname@example.org