PropelGrowth's  Instablog

I’ve been doing some interesting research to develop some thought leadership content for a client. While I normally work more with clients who support high frequency trading, this client facilitates high-touch trading and work flows dominated by voice and chat communications.

In the past decade, there has been a lot of focus on direct market access, algorithmic trading, high-frequency/low-latency trading, and enabling straight-through-processing for automated trading. But while high-frequency and low-latency trading is growing very quickly, high-touch trading still dominates in most asset classes. Even in equities trading, high-touch is still very important. According to the Tabb Group, in 2010, 39% of US and 62% of EU buyside equities trading was high touch. Other asset classes have even higher percentages of high-touch trading.

High-touch sales traders and dealers can still deliver better results for clients who are looking to execute multi-asset trades, use idea-driven strategies, or take advantage of specialized trading expertise. “Throughout our interviews, buy-side traders told us they need the colour, trading expertise, flow and access to risk capital offered by their brokers’ sales trading desks,” says Miranda Mizen, principal and head of European research at Tabb Group.

While the profit margins in low touch automated trading get thinner every year, clients will still pay a premium when they need the expertise of a human who can work their orders. According to Matt Simon at Tabb Group, “Idea-driven funds will pay a premium for services and sales trader coverage and spend nearly 30% more in their average blended rate versus a typical mutual fund company.”

High-touch trading depends on relationships, voice communication, and the expertise of traders and analysts. It requires a great deal of collaboration. As multi-asset strategies become more common, that need for collaboration is only going to grow more intense, and sell side firms are going to have to change to accommodate the new demands placed on them by clients. For some firms, this will mean reorganizing the trading floor. For others, it will demand more collaboration tools such as unified communications, video conferencing, trading system integration, and enhanced trader productivity applications. The sales traders who succeed in this environment are going to need to broaden their thinking, learn more about other asset classes, and identify new ways to add value for their clients.

It’s a new world, but one in which the high-touch sales trading desk can still add significant value.

-- Candyce Edelen