Fragmentation vs. Liquidity: Can Technology Resolve the Debate?
Today’s traders are focused on technology and connectivity, and buy-side traders increasingly are leveraging tools and techniques for developing and selecting algorithms. While these algos have helped traders lower their transaction costs, however, breaking up large trades into smaller pieces and executing them over time leaves the trader open to both market impact of a poorly timed, executed, or selected algorithm, as well as the opportunity cost of not executing immediately and leaving the trade open to a potentially market-moving event. This cuts to the heart of the age-old debate: Can an order both limit market impact and opportunity cost? In this TABB Group Market Note, founder and research chairman Larry Tabb examines the new technologies and services that are helping limit impact and opportunity cost as they enable clients to leverage algorithms, gather liquidity, and keep orders in the market.