This BILLIONS deep dive is about market liquidity. How do you execute a trade that is 14 times the size of the average daily trading volume? To solve the challenge I interviewed Joe Wald, an entrepreneur in electronic execution and renowned expert in algorithmic trading (currently co-head of electronic trading at BMO Capital Markets). He explains the liquidity issue in the stock market and how to solve them. Full interview: • Algorithmic Trading De...
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Financial concepts in this episode:
👉 Market liquidity
👉 Algorithmic trading (algo trading)
👉 Liquidity Risk
👉 Derivatives
👉 Trading volumes & Bid - Ask
TRANSCRIPT FROM JOE WALD
The marketplace today is highly fragmented and trades in. Very small size. So average trade size on an exchange is probably a hundred shares or less. And the average order size of an institution is, 10,000 shares
Electronic trading and algorithm trading is really the methodology in which institutional clients leverage their access to executing a trade. To put it simply institutions tends to need to buy or sell large amounts of stock.
When you've got a fragmented market where you've got multiple places where you can execute and you also have high-frequency trading trying to, get an edge based on what they're seeing in the marketplace. It becomes an incredible challenge for an institutional client to be able to execute their orders without signalling or creating a lot of market impact or creating information leakage.
Using different quantitative strategies or different benchmarks to be able to execute that in an efficient and positive way for that client to get a great outcome.
An institutional client that's looking to trade electronically to execute a large block it is leveraging a strategy. Depending on what they're looking to do potentially a liquidity sourcing strategy, that's going to, work the order based on a quantitative kind of, arrival price kind of strategy. It's also gonna look to see if there are any large blocks of liquidity that take place in some of the dark pools or some of the venues that are at midpoint.
So what would happen if Axe Capital was a client of Joe’s and was passing the order to his team?
Now we've got this order. We understand the client's objectives. They've chosen a strategy of ours that they're going to use and, it's our job to make sure that the strategy performs optimally and that, we're picking the right venues and the right order types and watching what's happening in the marketplace really closely to make sure that we're executing as best we can and ultimately delivering a great outcome for the client.
ABOUT THE BILLIONS SERIES
Emmy® and Golden Globe® winners Paul Giamatti and Damian Lewis star in a complex drama about power politics in the world of New York high finance. Shrewd, savvy U.S. Attorney Chuck Rhoades (Giamatti) and the brilliant, ambitious hedge fund king Bobby "Axe" Axelrod (Lewis) are on an explosive collision course, with each using all of his considerable smarts, power and influence to outmanoeuvre the other. The stakes are in the billions in this timely, provocative series.
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