As market dynamics shift and regulatory environments tighten, trading professionals are under pressure to find ways to optimise performance and manage risk no matter what their asset class. We used our CMX Head Trader Think Tank to discuss best execution strategies for Multi-Asset trading, insights into data utilisation, Multi-Asset trading benefits, and the challenges involved. Read on for the most useful and actionable takeaways…
Key Discussions and Insights
Why Multi-Asset Trading?
Although Multi-Asset trading demands agility and versatility from traders, it also allows for better risk management and flexibility. While Multi-Asset trading has long been a necessity for smaller teams with fewer resources, it’s now becoming a reality for larger teams, where viewing the portfolio as a single pool of risk rather than isolated trades is crucial for optimal execution.
Defining Multi-Asset Trading
Simple as it may seem, coming up with a clear definition of Multi-Asset trading is far from straightforward.
From incorporating more than one asset class to trading any assets, traders may be required to make trades as needed, or simply to have a specialisation in one asset class with a working knowledge of others which aids collaboration. In practice, Multi-Asset trading generally requires extensive handovers and collaborative work, ensuring that team members can cover for each other seamlessly.
Data Utilisation and Measurement
It’s often a challenge to collect enough data to make statistically significant conclusions, so centralising and streamlining data across all asset types is increasingly important. Likewise, understanding the impact of best execution metrics beyond individual trade performance will deliver a far clearer picture across Multi-Asset strategies. When it comes to TCA and reporting, a focus on the results and the investment process overall offers reassurance to clients.
Challenges of Multi-Asset Trading
Many trading desks struggle with using multiple systems for measuring best execution. There’s a need for a single, integrated platform that can handle all asset classes, which should also reduce costs and increase efficiency. Similarly, finding the right benchmarks across different asset classes and determining the metrics which make a difference remains a challenge.
Implementable Strategies
Strategy 1: Integrated Data Platforms
Adopt integrated data platforms to centralise data collection and analysis across all asset types. This can streamline processes and provide comprehensive insights into trading performance.
Strategy 2: Holistic Performance Metrics
Develop metrics that evaluate the overall performance of Multi-Asset trades, rather than focusing solely on individual legs. This can provide a more accurate reflection of execution quality and strategic impact.
Strategy 3: Enhanced TCA Practices
Improve TCA practices by ensuring they are aligned with the firm’s overall strategy and client expectations. Regularly review and update TCA methodologies to reflect the unique characteristics of each asset class.
Strategy 4: Cross-Asset Collaboration
Foster a culture of collaboration among traders specialising in different asset classes. Aim for regular team meetings and knowledge-sharing sessions to support a unified approach to managing Multi-Asset portfolios.
Strategy 5: Client-Centric Execution
Maintain a client-centric focus by ensuring transparency and demonstrating how execution strategies align with clients’ objectives. Collate and use comprehensive data to provide clear and actionable insights into how trades are executed and their impact on the overall portfolio.
Conclusion
Best execution in Multi-Asset trading needs a sophisticated approach that pulls in information from multiple data sources, leverages comprehensive metrics, and is supported by collaboration across teams working on different asset classes. By understanding the unique challenges and opportunities presented by Multi-Asset trading, firms can develop strategies that not only optimise performance, but also boost client satisfaction. These insights from our CMX Head Trader Think Tank underscore the importance of a holistic, data-driven approach to achieving best execution in today’s complex trading environment.