algo.trading /alɡəʊ treɪdɪŋ/
The big picture
MTFs and OTFs must have systems and controls to manage the
risks of algorithmic trading. Meanwhile brokers, investors and
HFTs must have systems and controls to manage risks, with
additional controls for HFTs. Firms must have a good understanding of how their algorithms work and their effects along
with greater controls for firms offering direct electronic access.
MTFs and OTFs must flag orders executed via algorithm.
The biggest change
The biggest change that affects the most firms will be the need
to understand how algorithms work. While it may seem obvious,
many end users of algorithms, primarily buy-side institutions,
may have only a limited knowledge of the trading strategy and
how it functions in a live market environment.
The biggest difficulty
will be in getting adequate provisions in place to thoroughly
test new algorithms before they are deployed. Many firms are
creating algo testing environments, but knowing how to make
best use of these will be a major conundrum for firms.