A Trading Life Cycle Series
02.28.22 | Scott Scherr, Managing Director - Trading and Execution Technologies, FlyerFT
If trade creation is the first half of an asset manager’s trade order management process, then order management is the all-important second half.
That’s because even if you get that critical first step perfect, an error in the second half can impact the execution price and the initial performance of the investment in your client’s portfolio. So how can you ensure that you’re delivering the absolute best for your clients in every single trade?
The answer is in your technology. The right tech can make order management an easier and all-around more efficient experience.
We’ve got your guide to consistently achieving best execution and performance for your clients – without the hassle. Keep reading to find out all the details you need to know.
Why Is It Important to Achieve Best Execution for Clients?
As defined by FINRA, “Best execution is a significant investor protection requirement that essentially obligates a broker-dealer to exercise reasonable care to execute a customer’s order in a way to obtain the most advantageous terms for the customer.” Best execution is all about properly working each trade so that you can ultimately help achieve your client’s investment goals. From happier clients to more consistent results, the benefits of best execution are game-changing.
When you get the best execution possible on your trades, you’re likely to end up with better performance, which in turn gives you satisfied clients. Putting tech at your fingertips that allows you to easily control your order management processes can help you get there more efficiently.
Consistency in your trade practice matters. For instance, when the Securities and Exchanges Commission (SEC) reviews firms, they look at your ADV to compare what you say you’ll do versus what you’re actually doing. If your ADV says you’ll do your best to trade the same across all accounts, you need tech to support your ability to do that so you can prove it during your next exam.
In a situation where you have competing orders, defining your rotational strategy is critical. Documenting a repeatable and equitable rotational strategy that does not favor any specific account is the most common practice.
Achieving Best Price
While some investment managers are more concerned with printing a trade than getting the best price, that’s non-negotiable for high net worth clients where performance is what you’re judged by.
Applying Advanced Trading Techniques
Advanced trading techniques, such as limits, algorithms, and alternative trading systems (ATS) have historically been reserved for institutional asset managers using execution management systems and very advanced OMS systems.
Our innovative Flyer Co-Pilot order management software now brings these capabilities to the masses and enables asset managers everywhere to access them at scale.
Here’s a quick look at what you can expect.
Order blocking is an important (some might say critical) functionality for efficient order management.
Sending single trade orders forces you to compete against yourself – and that’s a recipe for disaster if your firm needs to prove that you’re providing fair and equitable execution across all accounts.
Your trading tech needs to offer trade blocking for one simple reason – it allows you to ensure all your trades get executed at once, so every client gets the same price, whether they’ve invested $10,000 or $100,000 with you.
Working the Order
The ability to work an order by slicing it into smaller increments (to get a better feel for the liquidity in that security) and taking advantage of trade algorithms and trading instructions is where trading technology shines. That’s because there’s a difference between sending a market order and truly working an order.
In days gone by, you might have picked up the phone to call your broker when placing an order. If the price wasn’t where you wanted it, you’d instruct them to hold.
Working an order allows asset managers to have more involvement in the ultimate trade execution price, which results in better control of the outcome to unlock better investment performance.
Instead of calling a broker, trading algorithms, such as a VWAP algo, lets you set parameters when creating trades that pass your desired trade parameters to the broker so they know how you want to work the trade. You can even add a note to “call me before you execute this” if you want that old-school phone experience.
Another bonus? You can execute a portion of an order instead of the full amount to see how they execute, then finish the order if you like the way the trade is worked.
Another way to achieve better execution is the ability to “trade away” from your custodian. This allows you to block the order by side and symbol and then look to the street for a more competitive execution price. This avoids potentially competing against yourself by trading the same symbol at two different venues.
Fly Higher with FlyerFT
FlyerFT provides all the tools you need to get the best execution possible according to your firm’s unique investment strategies.
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