The Dark Art of Pre-Trade Analytics

Financial firms commonly review trading activity after the fact to improve their execution strategies. But what they’d really love to do is perform that in real time, pre-trade. Max Bowie looks at how far along market participants are in pursuit of this goal, and the significant challenges to achieving it.

While there are a plethora of tools claiming to perform pre-trade analysis of trades, many simply factor the proposed trade into firms’ preset risk parameters that determine how much of an asset a firm is comfortable holding. Actually delivering a pre-trade, real-time analysis tool—either for predicting market impact or measuring transaction cost analysis (TCA)—that provides an indicator as accurate as a trader’s “gut feel” is harder and more resource-intensive than one might first think.

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