Electronic trading is a beneficial but underutilized tool for advisors. Technically, advisors have been trading electronically through custodian websites for many years, but this is not an entirely straight-through-process.
To trade multiple accounts advisors have to create a CSV file in a custodian specific format, save it in a location, log into the custodian site, upload the file, validate the results and review any warnings. Finally, after many manual steps, the trade is ready for execution. This laborious process limits a RIAs ability to respond timely to market conditions.
As part of our blog series on straight through electronic trading, we will discuss the benefits of electronic trading, take a closer look under the hood of the FIX Protocol, and discuss why many advisors do not take advantage of electronic trading.
One of the best benefits of electronic trading is having a straight-through trading process that reduces the risk of trade related errors caused by human involvement or “fat finger” trades. If you are creating CSV files and using Excel, there remains a high risk of mistyping the trade order details. Using an end-to-end system that includes electronic trading is the best way to mitigate these risks.
With the ability to trade instantly at any time, advisors can take advantage of any market changes during the day to get the best execution price for clients. In addition, advisors can take advantage of trading algorithms and increased trade desk communication which comes along with electronic trading.
The investment industry has often associated electronic trading with large institutions or high frequency traders but the same technology can benefit advisors. Although every RIA may not need to execute large block trades across multiple custodians for hundreds of accounts in less than a second with the single click of a button, every advisor benefits from a streamlined trading process that saves time and reduces risks.