Fri, Apr 25, 2014
A A A
Welcome Guest
Free Trial RSS
Get FREE trial access to our award winning publications
Opalesque Futures Intelligence

Practitioner View: Gerard Colagrossi on how an IB continues to add value.

Friday, April 29, 2011

In a Changing Industry, Some Things Are Constant

This view is from Gerard Colagrossi, founder of Colagrossi Futures LLC. He's a long-time broker who has held executive positions at Fortis, UBS, ABN AMRO and MF Global.

I have been involved in the futures industry for over 30 years. I've probably  been responsible for more orders than anyone else in the business. It was a different world when I started at that time prices were written on boards with chalk! Now, of course, everything is electronic.

But the basics of what we do for clients has not changed. We're a full service introducing broker, providing clearing, execution and back office services. The clients are commodity trading advisors, hedge funds, institutions and high-net-worth customers. Our goal is to provide accurate clearing and execute according to their specifications. Yes, trades are automated, but we attempt to improve execution and make sure it is done the way clients want. 

Avoiding Slippage

Our desks have been responsible for thousands of orders a day. Many clients have multiple accounts at multiple futures commission merchants. A major concern with large trades is slippage. Nobody wants to find that the market price moved against them because of the trade they put on. 

I believe it is not the case that there is necessarily more slippage today compared to the past. At certain times a market can be thin and a big order can cause slippage, but markets in general have become more liquid. The number of contracts traded has increased tremendously and volume continues to grow from year to year.

INSERT TABLE

Futures and Options Volume

                        Percentage Change from 2009 to 2010*

Foreign Currency        142%

Ag. Commodities        41%

Non-precious metals   39%

Interest rate                 30%

Equity Indexes            16%

Precious metals           16%

*Contracts traded or cleared at 78 exchanges worldwide.

Source: Futures Industry Association.

---------------------------------------------

On the other hand, with electronic trading you can have more slippage. An electronic trading system may take the first bid/offer available. With discretion, a broker-trader would not always take the first offer but look for a better price. Whether stop-orders achieve better prices depends on market conditions.

Market volume fluctuates due to current events. You do not want to put orders, especially big orders, blindly into the market. That's where human intelligence still provides value. We execute most orders electronically but watch the market before executing to try to get our clients get the best price.

Market Knowledge

It used to be that you could only trade limited hours during the day.  Now you can trade 24 hours a day. Some overnight news events and market moves are as important as events that happened during daytime. We are open 24 hours.

It still pays to have people with deep knowledge of a market to oversee trade execution in that market. Our market specialists have been doing the same overnight shifts for years.

The markets are too complex to change people's schedules, so we do not rotate schedules. If somebody works on the Sydney market we're not going to move him to the Europe market.

One change in recent years is customers' priorities. In the past five or six years people were very price sensitive. But now they look for added services; they want value, not just low cost. We work to make it as seamless as possible.

Another major issue is confidentiality. There's a perception that prop trading desks might use customers' order flow information to make money. The 2010 Dodd-Frank Act is getting the banks out of prop trading. But clients look for brokers they can trust with their trade information. They want to sleep at night. As an  IB, our obligations to the client remain the same.



 
This article was published in Opalesque Futures Intelligence.
Opalesque Futures Intelligence
Opalesque Futures Intelligence
Opalesque Futures Intelligence
Banner
Today's Exclusives Today's Other Voices More Exclusives
Previous Opalesque Exclusives                                  
More Other Voices
Previous Other Voices                                               
Access Alternative Market Briefing
  • Top Forwarded
  • Top Tracked
  • Top Searched
  1. Opalesque Exclusive: Rainwater and Blue Sky - an Australian water fund emerges[more]

    Bailey McCann, Opalesque New York: Financial reporters often tout new funds and investments as uncorrelated investments, but few can say they are uncorrelated to everything but weather. Enter Blue Sky Alternative's water fund which invests in the permanent rights to Australia's water. Sev

  2. Regulatory – Expect greater SEC scrutiny of hedge funds that share information or collaborate in advance of their trades, Alternative funds to get SEC test for leverage, liquidity[more]

    Expect greater SEC scrutiny of hedge funds that share information or collaborate in advance of their trades From Thelawyer.com: A recent Wall Street Journal article — ‘Activist investors often leak their plans to a favoured few’ — focused attention on ‘activist’ investors and stock analy

  3. …And Finally – This week's least competent criminal is Austrian[more]

    From ABCnews.go.com: A German sought by authorities for alleged fraud has been arrested in Austria — after dropping into a police station to ask officers whether he was under investigation. Police in Salzburg said the 59-year-old man walked into a police station in the city on Friday night. Sp

  4. Investing – Hedge funds find pitfalls along with profits in real estate ventures, Marcato Capital Management makes new bet on Dillard’s[more]

    Hedge funds find pitfalls along with profits in real estate ventures From Law360.com: Hedge funds have joined the rush to real estate deals and development in recent months to close the financing gap left by tightening bank standards, but attorneys say many aren't prepared for the disclo

  5. Agecroft Partners estimates 90% of hedge funds using social media[more]

    The use of social media has increased significantly within the hedge fund industry over the past couple of years. Social media is broadly used by investors as part of their due diligence process on hedge funds, by service providers in their sales efforts to hedge funds, and by hedge funds to enhance