Wed, Mar 21, 2018
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.


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
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. John Paulson, once the industry's largest hedge fund, to return some investors' money[more]

    Komfie Manalo, Opalesque Asia: John Paulson is reported to be retuning some of his investors' money as a number of his hedge funds continue to suffer setbacks, reports

  2. DoubleLine's Gundlach sees U.S. 10-year Treasury yield rising, weighing on stocks[more]

    From Reuters/ Jeffrey Gundlach, the chief executive of DoubleLine Capital and known on Wall Street as the "Bond King," said on Tuesday the yield on the U.S. 10-year Treasury note will likely move higher and pressure riskier assets including equities and junk bonds. Gundlach, on an

  3. SEC charges Theranos CEO Holmes with fraud[more]

    Bailey McCann, Opalesque New York: The SEC has charged Elizabeth Holmes, founder and CEO of Theranos and its former President Ramesh "Sunny" Balwani with raising more than $700 million from investors through an elaborate, years-long fraud in which they exaggerated or made false statements about t

  4. Institutional Investors - Overdrawn pension fund scores gains[more]

    From Investments in big banks, pawn shops and rolling papers helped boost public safety workers' underfunded pensions this past calendar years, according to newly released figures. After recording middling returns in recent years, the Police & Fire Pension Fund (P&F) notched

  5. Hot hedge fund loses 21% after bet on volatility goes wrong[more]

    From In December, Shahraab Ahmad shared with his hedge fund clients the principle that helped him trounce peers for two turbulent decades: steer clear of the crowd. He'd turned $50 million into an operation with more than $700 million over three years and delivered market-beating retu