5 Considerations When Choosing an Outsourced Trade Service

The industry is at a turning point due to cost pressures, outsourcing's effectiveness, and COVID-19, which together present a strong argument for investment businesses to rethink outsourcing their trading operations. Over the years, investment firms have sought to outsource various back-office tasks, but they have been hesitant when it comes to trading. Investment decision-makers have typically preferred to have trading teams close by. 

The rise of a typical outsourced trade service serves as a reminder of how maintaining an internal trading desk is becoming more and more difficult as the investment management sector increasingly asks if trading falls outside of its core competencies. 

Using an outsourced trade service should increase the efficiency of trade execution for investment corporations worldwide, including insurance companies, global trading bank systems, pension funds, and hedge funds. 

With trading desks all across the world, these providers can help customers scale up quickly, and they can customize execution to meet the unique requirements and demands of fund managers.

The following five variables should be considered when entertaining the possibility of outsourced trade service operations because outsourcing middle and back-office functions for financial institutions is already a well-established industry.

What factors should be kept in mind before choosing an outsourced trade service? 

1. Need for contact:

Before the pandemic, traders, portfolio managers, and investors frequently met in the same space (or, at the very least, the same building), exchanging ideas and sticking to the belief that this was the most effective way to conduct business. 

However, the COVID-19 work-at-home shift has demonstrated that communication between trade teams, trading parties, and global trading bank systems can be effective even when they are working remotely. 

Most traders will continue to operate from outlying areas using trade services software. The psychological barrier of needing to have everyone in the same room is no longer a necessity with cutting-edge trade finance software. 

2. Scalability factors:

All industries have benefited from scalability and cost reduction using Software-as-a-Service(Saas). Using outsourced trade service providers, businesses may expand swiftly and launch new goods without adding more traders to handle the volume or consider different investment structures.

In the case of a market downturn or investor drawdowns, expenses drop because fixed costs are changed to variable costs. 

3. Tailored strategies provide more flexibility:

There is a misconception that outsourced trading organizations only offer a one-size-fits-all approach, but the contrary is true. These outsourced trade service experts must be adaptable and capable of doing so. In actuality, outsourced trading companies frequently boost performance efficiency. 

To fit a solution to your platform and strategy, these providers should be able to examine your processes and make suggestions for how to improve them in areas like implementation and trade life cycle. Order processing, settlement, trade services software, and other scalable reporting and operational routines are typical examples of outsourced trading services. 

4. Trader churn risks:

Asset managers struggle to keep talent as the competition increases for skilled traders. The skills gap is particularly acute for specialized traders for asset types like derivatives and illiquid products. When an expert trader leaves an asset manager, it takes time and money to locate a successor and train the new employee on protocols. 

Some employees have stronger ties with global trading bank systems and governments. It is advisable to look for trading companies with powerful allies in the market. 

5. International trade increases costs:

Firms now need to have a global trading presence since investment mandates increasingly call for exposure to international stocks and other assets like commodities. Since many financial items are now traded around the clock, Sydney, London, and New York would need to add more people. 

Instead, businesses can use a trade finance software partner who has a trading presence internationally and is available to fill orders at any hour of the day. It's probably a far more economical strategy than keeping trading personnel all around the world.

Closing words-

The elements above make a strong case for outsourced trading service providers. Asset managers will likely encounter increased expenses and restrictions due to regulatory changes and the changing global markets in the coming years. They will find it more challenging to make a case for forgoing the efficiencies that domain experts may supply.

Reach Trade Technologies to secure better ties with global trading bank systems and access trading expertise 24*7.