I’ve just returned from my first trip to Singapore, speaking at TradeTech Asia and visiting with a handful of trading firms. I was duly impressed. Asia-Pacific is undergoing a sea change. Their penchant for all things ‘high-tech’ is a focal point for growth as they become leaders in the global economy. The Asian trading landscape is on the move creating improvements, in networking infrastructure and technology. Regional exchanges such Singapore Exchange Ltd. (SGX) have deployed expanding services where they can process transactions in 90 microseconds, making it the fastest matching engine in the world. The expanding use of algorithms all across Asia is expected to hit 26 percent within three years and on the eve of Chi-X Australia’s first year anniversary they grabbed nearly 9 percent of the Australian equities market fostering a new era of fragmentation.
Firms have to be ready for the coming paradigm shift and rise above the fear that comes from change. Falling volumes are pervading the region arguably forcing the use of algorithms as firms chase after a diminishing pot. The thinner volumes make an already arduous search for fair priced liquidity even harder for institutional traders. When volume is low, no one can be sure whether the bid/offer prices represent the real market value. Lower numbers of transactions massively affect volatility, since one large transaction can have a disproportionate effect impacting all participants. In such dearth markets firms use every available means in the hunt for alpha. Greg Lee head of trading for Asia at Deutsche Bank recently mentioned in Automated Trader, “Market participants are always looking for smarter ways to trade; alternative liquidity, blocks, smarter algorithms all come into play”.
Asia is spread out over a broad geographic and political expanse where each market is unique. The challenge is efficiently trading across them recognizing their differences in both market microstructure and regulation. The determinants of price discovery, volume, and trading patterns define the structure unique to a market, an asset class and geography influenced by participants and current regulation. Trading smarter in the Asia-Pacific region begins with that recognition. The place is simply different from the west.
Trading smarter is a convergence of technology decisions on data management and build versus buy and understanding key solutions for alpha, risk management and controlling costs.
Download the whitepaper Four Things to Consider to Trade Smarter in Asia.
Once again thanks for reading.
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