The Growth of Algo Trading in Mexico

Mickey | Financial Services | Wednesday, December 15th, 2010

Anybody who is interested in the financial markets should be aware of the rise in high frequency trading (HFT) as well as algorithmic trading in the United States OF America.  High frequency trading is when computers are incorporated to create high numbers of orders and exchange those orders at high speed, sometimes trading thousands of times every second.

What has not been realized so widely, however, is that algorithmic trading (also known as algo trading) is also on the rise in other regions of the world.

There is evidence of this fact as well. UBS, a giant in investment banking, has recently started Direct Market Access to the BMV securities exchange located in Mexico, which is Latin America’s second largest securities exchange.  Direct Market Access (DMA) allows the trading firms and investors access to electronic markets while utilizing the sell-side brokers’ infrastructure and investment banks, such as UBS.

Mexico, like Brazil, is growing rapidly into a world financial center and the introduction of UBS’s DMA will only help add to it’s ever expanding growth.  An algo trading or high frequency trading system cannot work efficiently without direct, fast, and electronic access to the market.  These HFT and algorithmic systems are drawing large amounts of volume and it is estimated that 70% of volume traded through the United States stock market is generated by HFT activity today.

Up and coming exchanges from other nations across the globe want to be in on this too, and institutional investors (i.e. marketing and pension funds) are turning their attention towards Latin America’s exchange market for this very reason.

How does Mexico’s algorithmic trading work?  Well, to put it in layman’s terms, the investment managers and trading firms create their desired orders by their own systems and then these orders are directed electronically (by way of  UBS’s DMA platform, for example) to the exchange’s corresponding engine.  Proprietary trading businesses, however, specialize in algorithmic trading and they take advantage of their own “black box” system to create their own orders.  If they are a high frequency shop, then up to thousands of these may be created and directed to the exchange every second.

It is amazing when you consider the volumes and the speed of the trades that are incorporated in this process.  Whether you are pro computer-based trading or not, it is difficult to deny it will grow continuously around the world as time moves on.

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