How Will Automated Trading Help the Trade Finance Market?

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A well-coordinated and secure trade finance market plays a critical role in enhancing the overall GDP of any nation. Timely payments between companies across borders, risk mitigation, and easy flow of information are vital aspects of the trade finance market. At the global level, the market has undergone transformation due to changes in regulations, corporate behavior, and increased competition. Market analysts at Technavio predict that the global market for trade finance will be worth $47 billion by 2020.

Trade finance, technology, and automated trading

One major challenge for the trade finance market is to integrate seamlessly with the latest technological innovations. Moreover,  what makes this integration a bigger challenge is the fact that it is hard to get all parties (both buyers and sellers) on board for this purpose. Secondly, when it comes to trade finance processes, the nature of transactions between banks and trading partners continuously varies. The “one size fits all” approach does not work here. Automated trading, on the other hand, reduces the risk of manual errors and helps in the seamless execution of the financial transactions.

The modern trade finance market makes use of advanced mathematical models to arrive at transaction decisions and execute them. Advanced algorithms are used to decide on an optimal time at which an order can be placed so that the negative impact on stock prices can be mitigated. Automated trading software is programmed in such a manner that it enables both the buyers and the sellers to trade in a hassle-free manner.

Users of Automated Trading

users of automated trading; image

Source: Technavio


What’s driving the automated trading platform?

According to industry analysts, there are three major drivers of the automated trading platform:

  1. High demand for market surveillance
  2. Increased integration of financial markets
  3. Algorithmic imports in Asia

Several top players in the trade finance market are trying to optimize their data management strategies and fill gaps in the system. Market surveillance drives compliance and provides better risk management platforms. Similarly, with increased integration of financial markets, automated trading helps in the efficiency of the trade finance market across the globe. As markets become integrated, different countries can easily diversify their portfolios and witness increased capital inflows, innovate on various trading platforms, and most of all, have better liquidity.

Lastly, algorithmic imports into Asian markets are considered a force behind the stock market trading. Until now, the local banks in Asia were unable to offer customized algorithmic platforms to their clients due to huge competitive pressures from global banks. However, with algorithmic imports, several local and regional banks in Asia can establish their own algorithmic trading platforms to help institutional investors in the region buy different stocks.

Citadel, KCG, Optiver, and Two Sigma Investments are some of the key vendors in the global automated trading market.

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