Hedge funds and other asset managers are showing continuing interest in the way that orders get executed, which can make the difference between a profitable trade and an unprofitable one.

“One of the most dramatic evolutions we’ve seen is involvement by the buy side,” said Ronan Ryan, chief strategy officer at IEX Group. “Many were involved before, but post-‘Flash Crash’ a large majority got involved. They’re asking more questions, and they’re taking more control of their order flow based on the answers they are receiving and researching. It was necessary to shift the focus of the markets to serving the investor over intermediaries wherever possible.”

Quantitative trading strategies, which depend on split-second precision in order execution, have had to take into account the impact of high-frequency trading, which some firms believe is detrimental.

“It can be harder at times to get prices that you may have been able to get historically,” said Mike Bellafiore, co-founder of SMB Capital, a New York-based proprietary trading firm. “There are predatory algorithmic programs that are trading against some of your strategies. There can be slippage as a result of HFTs. There can be more volatility which will shake you out of good positions as a result of HFTs. There can be false signals as a result of HFTs. This is something that all of us traders have had to factor into our trading.”

SMB Capital, which focuses on U.S. equities, U.S. options and automated trading strategies, trades over $200 million dollars on an intraday basis. The firm provides software to help traders to automate their strategies.

Discretionary traders are being given technology for the first time that enables them to automate their strategies. “This enables them to play a lot more offense,” said Bellafiore. “The strategies are mainly built by our discretionary traders. We have software that enables the discretionary traders to go in and without the necessity to be able to code. You essentially write a bunch of “if, then” statements, and then build back-tests and run live automated strategies with firm capital.”

For instance, a quantitative trader will look at a breakout trade and come up with a thesis and a model. “A discretionary trader may be a more visual trader, but that picture is also based in math. Getting them tools to be able to break down those pictures in math is getting to the same result, just from a different skill set,” said Bellafiore.

Although SMB Capital hasn’t quantified the impact of HFT, it has had to change some of its strategies. “There’s a lot of strategies that we just can’t use any more,” said Bellafiore. “As proprietary traders, we have to be right more often to the end of the day to stay in the game.”

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