The algorithmic trading market involves the development and use of electronic platforms for placing a large number of orders at a high speed. Algorithmic trading helps in automating the entire trading process by executing buy and sell orders as programmed without any manual intervention. It analyzes streaming market data and triggers trades according to the predefined algorithms. Algorithmic trading benefits traders by reducing operational risks through automation of large volumes of trades with no human errors.
The global algorithmic trading market is estimated to be valued at US$ 21,211.7 Mn in 2023 and is expected to exhibit a CAGR of 10.8% over the forecast period 2024-2031.
Key Takeaways
Key players operating in the algorithmic trading are AlgoTrader GmbH, Trading Technologies International, Inc., Tethys Technology, Inc., Tower Research Capital LLC, Lime Brokerage LLC, InfoReach, Inc., FlexTrade Systems, Inc., Hudson River Trading LLC, Citadel LLC, and Virtu Financial. Algorithmic trading offers opportunities for traders to gain an advantage over manual trading through the use of high-frequency data analysis and AI/machine learning models. The global expansion of the algorithmic trading market is driven by the adoption of technologies like cloud computing and big data analytics that helps traders to deploy sophisticated trading algorithms and scale operations seamlessly across global markets.
Market drivers
The growth of the algorithmic trading market is majorly driven by the increase in automated trading activities. Automated trading using algorithms helps in analyzing huge volumes of market data in real-time and executing trades faster than humans. It enables traders to capitalize on short-term market opportunities by executing thousands of trades within fractions of a second. Furthermore, algorithmic trading lowers transaction cost for traders by bundling many orders into large blocks and negotiating prices with liquidity providers. This makes algorithmic trading more cost-effective than manual trading.
PEST Analysis
Political: Algorithmic trading and high-frequency trading are facing increased political scrutiny and discussions around regulation. Some political forces advocate for more transparency and oversight of automated trading strategies.
Economic: As global equity markets become increasingly automated and globalized, the economic drivers of the algorithmic trading market are integration of fragmented liquidity and achieving lower transaction costs through technology.
Social: While algorithmic trading has reduced costs for many investors, some argue it has worsened market volatility and impacted long-term investors. Opponents cite examples like the 2010 Flash Crash as evidence of potential downsides from automated trading strategies.
Technological: Continuous improvements in computing power, data storage, network bandwidth and artificial intelligence techniques are enabling increasingly sophisticated algorithmic models and strategies. Machine learning now powers adaptive algorithms that can evolve over time.
Geographical Concentration
The algorithmic trading market in terms of value is highly concentrated in developed markets with sophisticated electronic trading infrastructure and liquid equity markets. North America, especially the United States, accounts for the largest share due to trading centers like NASDAQ and NYSE. Europe is another major region supported by pan-European exchanges. Large asset managers and proprietary trading firms drive extensive algorithmic activity in these developed markets.
Fastest Growing Region
Asia Pacific is poised to become the fastest growing region for the algorithmic trading market over the forecast period. Countries like China, India, South Korea and other emerging Asian nations are experiencing rising institutional and retail participation in their stock markets. To compete and capture this growth, trading firms are investing in expanding their algorithmic trading capabilities across the region. Increased regional economic integration and development of trading linkages between Asian bourses will further stimulate algorithmic activity.
*Note:
- Source: Coherent Market Insights, Public sources, Desk research
- We have leveraged AI tools to mine information and compile it
