Choosing an OEMS: Automated but in Control

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For discretionary traders, choosing a trading software solution is a bit like choosing a car. You want to remain in the driver’s seat in terms of selecting trades, but that doesn’t mean you don’t want to engage cruise control occasionally when it comes to order execution.  

There used to be a clear, almost tribal division between the data-driven strategies of quants and the more fundamental approach of discretionary traders. More recently, however, these barriers have begun to erode. Discretionary traders are increasingly integrating automation, quantitative techniques and alternative data sources into their workflow, while continuing to have the final say over which trades are executed. This hybrid strategy, sometimes referred to as a “quantamental” approach, is designed to marry insights from quantitative analysis with the expertise and experience of human stock pickers, while automating tasks that can be more efficiently performed algorithmically. In a year of major economic upheaval with few historical parallels like 2020, it is easy to understand the rationale behind this approach.      

So, if you are a discretionary trader seeking to achieve the “best of both worlds” by automating elements of your workflow while retaining control over order generation, where is the low-hanging fruit? This often comes down to identifying the core competencies that human traders are best at while automating other more routine tasks such as compliance, monitoring and record-keeping. In this regard, choosing the right order and execution management system (OEMS) is key.  

By using an integrated OEMS, you can simplify your workflow by automatically routing all active orders through a wide range of market makers, liquidity providers and exchanges. Particularly in the digital asset space, a good OEMS can help to minimize slippage, by charting the optimal routes for orders through liquidity markets which are inherently fragmented. This helps to minimize fees while increasing the overall execution speed and accuracy of the trade. The combination of these advantages can save you time and money, while also ensuring verifiable best execution by tracking and logging the full history of each executed trade.  

But not all OEMS are made equal and there are a number of key factors to look out for when selecting one. For discretionary traders, flexibility is key. Depending on regulatory or client requirements, it may be most efficient to select and run a pre-built execution algorithm such as VWAP, TWAP, Sniper or Market Sweep for instance. In other cases, however, the ability to create and deploy a custom algorithm can be a big plus. Therefore, it makes sense to select an OEMS that is not overly wedded to any one execution methodology and always leaves you with the option to remain in control when needed. 

When it comes to reporting and logging, the most important factors are reliability and transparency. When connecting with a myriad of market makers, liquidity providers, exchanges and brokers, disconnections can lead to gaps in your records. Clients have a right to demand proof of best execution at any time, so you need to be able to demonstrate that the execution algorithm really did pick the venue with the best market conditions. When using third-party proprietary execution algorithms, it is important that you can access the code and understand how it operates – if everything is happening in a black box, you won’t be able to verify best execution. In addition, it is crucial that your OEMS can monitor and respond to liquidity venue downtime and disruptions and automatically reconcile the data and order flow afterwards.      

Another key consideration is interoperability. You need a way to simply and quickly route orders to your OEMS on the fly without any duplication of work, so a reliable API to connect with your existing upstream order management or core banking system is a must.  

Finally, for any OEMS to be effective at achieving best execution, it needs to be linked to a wide array of liquidity venues in the target asset classes. This can be particularly challenging in the case of less mature, high-potential emerging asset classes such as cryptocurrencies and digital assets.   

AlgoTrader is an institutional trading software solution that has been purpose-built for flexible, yet automated best execution. This makes it an ideal choice for discretionary traders looking to streamline their operations. Here are some of the key advantages of AlgoTrader’s OEMS: 

  1. Connectivity: automatically connect to a broad range of market makers, exchanges, brokers and OTC desks over a single FIX connection. 
  1. Digital asset ready: the largest pool of regulated liquidity in the digital asset industry with support for crypto spot and derivatives.  
  1. Flexibility: APIs provide seamless integration with your existing upstream system while enabling you to manage multiple orders and portfolios simultaneously through a customizable execution interface.  
  1. Controlled automation: Built-in execution algorithms include TWAP, VWAP, Sniper and Iceberg, while support is also included for proprietary execution algorithms. 
  1. Compliance: Granular logging of all relevant trading and execution data to ensure that best execution is verifiable. In the event of venue disconnections, data and order flow are automatically reconciled.   

In an unprecedented economic climate, a growing number of discretionary traders are looking to automate elements of their workflow to increase efficiency. By selecting the right OEMS, you can keep control of order generation, while flexibly automating the execution process. This enables you to focus on your core competencies, while enjoying the same efficiency gains as your quantitative counterparts.     

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