Success Requires a Global Perspective

Think back to just one year ago and how different the trading landscape was: Dark pools were all the rage, the euro was still dominating the dollar and hedge funds were on a roll. Blink. A year later, and how things have changed. 2008 saw historic changes in the financial markets, astronomical volatility, and collapses and consolidation of major institutions that no one would ever have imagined.

No trader can deny that it is a different world on the desk today. Advanced Trading turned to some top buy-side traders to get their insight and personal thoughts on how trading has changed and what they see as key for trading going forward.

Think Globally
The markets have been highly correlated globally but fragmented locally for the past five years or so — mainly because of global trade, but also because of the rise of hedge funds that trade the arbitrage around the world. The markets have been fragmented locally because the onset of electronic trading has created multiple venues for execution and high-frequency statistical arbitrage opportunities for short-duration alpha managers.

Despite dramatic changes during 2008, traders for domestic markets — whether in the U.S. or locally in Europe — need to be aware of the global market moves because the impact of global trends on their little corner of the world will continue. Traders need to be global now, even if they trade just a certain sector in the U.S.A.

Liquidity, Liquidity
This market is still in a liquidation phase, meaning investors are forced to exit positions — whether long selling or short covering — no matter the fundamentals. This means that the markets will move for no apparent reason other than investors having to close positions.

In this environment, portfolio managers following their investment approach will enter positions, and they need to take advantage of what the market gives them. So if a long-duration alpha manager happens to buy a name he likes, and it goes up 20 percent in a day because someone is covering a big short position, the buyer may want to take some profits and reinitiate the position if it falls back when their short covering is complete.