You should want to work in electronic trading.

Trading is also being affected by the fact that when they engage in risky activities (like trading), banks are being obliged by regulators to raise more funds (capital) to back themselves and capital is hard to come by right now. And trading businesses are being affected by regulations like the US Volcker Rule , which says banks can’t trade purely with their own money to make a profit – they have to be buying and selling financial products on behalf of clients.

However, there’s an exception to the trading gloom and that is… electronic trading. Whilst most other kinds of trading are in the deep doldrums, banks are still investing heavily in electronic trading, because having the right electronic system in place (the right ‘platform’) is seen as increasingly important in a world where the banks with the most efficient, best-used electronic trading platforms will get all the trading clients. There’s a reason for this: the more trades a bank deals with, the more it will know about the prices on offer in the market and the better the service it will be able to offer its clients. In electronic trading, success breeds success. The race is therefore on to succeed. This being the case, if I were a graduate today I’d be trying to get into electronic trading. Fortunately, I’m not a graduate. Even more fortunately, I work in electronic trading already.

What is it electronic trading?

Electronic trading comes down to ‘Direct Market Access’ (commonly shortened to DMA). This is a term used to describe electronic trading facilities that give investors (eg., fund managers, insurance companies) that want to trade a way to interacting with the order book (all the other trading orders) of an exchange by themselves.

In these circumstances, a bank itself can act as the exchange and match up buyers and sellers. Alternatively, DMA can allow investors to go through the bank’s system and access the order book of a separate entity, like the London Stock Exchange.

In many cases, DMA is pooled with algorithmic trading. In this case, trading orders are generated automatically by complex mathematical formulae that look at how prices have behaved in the past and suggest appropriate trades based on extrapolations of what will happen in the future.

What kinds of products can be traded electronically?

Plenty: equities, FX, listed options, futures.

Why do clients use DMA?

1) LOWER COSTS - DMA usually offers lower transaction costs because only the technology is being paid for and not a trader’s expertise. A client self-trades and thus could expect to pay the firm a fraction of commissions it would pay normally.

2) EQUAL PRIORITY - Every order is of equal importance on the order book, prioritised only in terms of price and time.

3) TOTAL CONTROL - Orders are handled directly by the client giving them more control over the final execution and the ability to exploit liquidity and price opportunities more quickly. They do not need to call their sell side firms sales trader to move limits, cancel orders etc which in busy markets can take time.

4) ANONYMITY - Information leakage is minimised because the trading is done anonymously using the DMA provider's identity as a cover. DMA flows are also generally safeguarded from other trading desks within the sell-side firm

5) TIGHTER SPREADS - As limit orders are displayed publicly rather than held privately, market spreads become tighter, benefiting the order placer, who has a higher probability of getting executed at the price and the market as a whole which has a tighter public reference price to work from.

So, what kinds of jobs are on offer?

All kinds. Think of it as a mini trading floor with people working as sales traders for equities, FX, futures and options. As sales traders they will look after client’s orders, provide execution advice and watch out for fat fingers and errors.

There will be algorithm designers who will design and tailor the mathematical computer programmes that generate the trades to meet clients' needs. A client may want something very specific outside the realms of the standard suite of algorithms.

Algorithm designers, programmers, market specialists, sales people: there is a broad range of opportunities in this vast and growing area.

The author works in electronic trading for a major US bank in London.