Algo trading in bonds vs stocks
Are bond/fixed income markets more manually executed than stock markets are? As in, is algo trading (by hedge funds and prop firms) less prevalent when trading bonds than stocks?
Also, how viable/lucrative is a trading/market making career in Fixed income nowadays? is it more Algo-based or discretionary?
Based on the most helpful WSO content:
Algo Trading in Bonds vs. Stocks:
Viability and Lucrativeness of a Trading/Market Making Career in Fixed Income:
In summary, while algo trading is more dominant in stock markets, fixed income markets still rely heavily on manual execution and discretionary trading. The career in fixed income trading remains viable but has shifted significantly due to regulatory changes and the evolving market landscape.
Sources: Bulge Bracket Trading in Government Bonds, Is it worth pursuing a career in trading in 2017?, Anyone here in ‘Electronic Trading’?, Does anyone else feel that trading is stupid and not intellectually stimulating at all?, How dead is trading?
BUMP
Most algo trading in fixed income is done by the big BB banks however Citadel / JS and the like are entering the market this year and will likely absorb as much market share as possible. Lot of flow going through the 2 major all-to-all platforms (tradeweb and Marketaxess) as well.
So Fixed-Income is getting increasingly more automated in both trading and market-making? seeing how there are millions of bonds worldwide whereas there are only roughly ~55,000 stocks worldwide, how long would it take for bond trading to be basically completely digitzed like stock trading is?
By what year/timeframe do you assume that Fixed-Income trading will almost cease to be discretionary?
I would say it’s already digitized, at least in the sense that it’s all done electronically, with many of the operational aspects of trading bonds already having been automated (ie settlement, pricing, coupon claims, accruals etc). As a market maker much of what I do is determining the direction I want to go and basically directing the algo to aim and fire. There are always tweaks to be made in the decision tree and things that need immediate manual intervention but most of these things can also be automated, I would argue however that just because something can be automated doesn’t mean it should be automated. Lot of variables in this business especially when the world stage looks like it does currently.
Ahh, So I take it that most bonds are already traded on digital exchanges. I always had the notion that bonds were primarily traded in the secondary market - which required considerable human intervention, especially for market makers.
There are millions of options worldwide (each equity has hundreds of options with various expiry dates and strike prices both for calls and puts, not even to mention all of the warrants and other similars), and yet the options market has been automated for over a decade. Don’t kid yourself, fixed income is super easy to automate and will be almost fully electronic within a few years.
I see... What securities/derivatives do you believe will be harder to automate and remain discretionary for a longer period of time?
Esse eligendi quidem ut quasi. Aut impedit rerum nemo sit. Et tempore sequi quia rerum enim at.
Eaque modi nobis sint a occaecati. Ut et ut esse. Recusandae et rerum est similique. Qui aliquid ducimus accusamus eum mollitia ratione temporibus.
See All Comments - 100% Free
WSO depends on everyone being able to pitch in when they know something. Unlock with your email and get bonus: 6 financial modeling lessons free ($199 value)
or Unlock with your social account...