An Introduction to Outsourced Trading
Outsourced trading
What is Outsourced Trading?
Fact-checked by Steven Grabowski (Co-head of Capital Introduction)
What is Outsourced Trading?
Outsourced trading consists of services associated with the life cycle of a trade provided to various financial entities including investment managers, hedge funds, and family offices. The offering includes trade execution and associated services including reporting, analysis, middle and back office support, and compliance. By using outsourced trading firms, organizations like investment managers and family offices can focus on their core competencies, i.e. investment strategy and portfolio management and outsource the trade execution and support to external providers in an efficient and cost-effective manner.
Outsourced trading is more relevant today than ever. Trading continues to grow more complex and the technological, operational, and regulatory burdens on financial institutions are increasing. Outsourced trading provides a solution by giving access to advanced trading platforms, market intelligence, and compliance support to help firms navigate the challenging market environment.
Over the last ten years, the perception and adoption of outsourced trading has changed. Initially seen as a niche service, outsourced trading has become mainstream as firms seek greater operational leverage. Complexity of financial markets and the need for cost efficiency has driven more institutions to adopt outsourced trading solutions.
What are the benefits of Outsourced Trading?
Cost Efficiency
One of the main benefits of outsourced trading is cost efficiency. Having an in-house trading desk requires a significant investment in technology, infrastructure, and people. By outsourcing, firms can reduce these operational costs. Third party providers operate at scale, spreading their costs across multiple clients which means lower fees for individual firms. This shift from fixed to variable costs can make asset managers more financially flexible and able to allocate resources more effectively.
Expertise and Specialization
Outsourced trading firms are often staffed with experienced professionals who have deep knowledge of trade execution and market dynamics. These specialists are focused on achieving best execution outcomes, using their knowledge and relationships within the industry. By partnering with these experts, asset managers can get better trade performance across asset classes and regions. The specialized focus of outsourced trading desks means trades are executed with precision and to the highest standards of efficiency and accuracy.
Scalability
Scalability is another benefit of outsourced trading. As firms grow and diversify their asset/regional mix and their trading volumes increase, managing an in-house trading desk becomes exponentially more challenging. Outsourced trading solutions provide the flexibility to scale operational complexity without the need for disproportionate increase in internal resources. This is particularly useful for larger asset managers and hedge funds who can handle higher trade volumes and expand their market reach without incurring significant additional costs.
Who uses Outsourced Trading?
Types of Firms
Outsourced trading is used by a wide range of financial institutions including hedge funds, asset managers, family offices, and pension funds. These firms use outsourced trading firms to improve their trade execution and operational efficiency. Outsourcing trading and additional services allows an organization to focus on portfolio management, research, and marketing.
Size and Scope
Outsourced trading is utilized by organizations of all sizes. Whether it is high volume trading by large institutions or smaller hedge funds and investment managers, in the earlier stages of their life cycles, both can leverage the infrastructure and expertise offered by outsourcing their trading. Outsourced trading providers can offer the scale and resources to manage these volumes efficiently and execute trades timely and efficiently across multiple asset classes.
StoneX is a Leader in Outsourced Trading
Widely recognized in the market, StoneX has received numerous awards for their outsourced trading solutions and service. Their customizable approach, superior client service, and expertise across asset classes set them apart from their competitors.
StoneX’s approach is unique within the marketplace. The team’s culture focuses on developing true partnerships with our clients and functioning as an extension of their team. We seek to add value in a myriad of ways including trading, compliance, reporting, and middle and back office support.
StoneX’s outsourced trading team integrates with clients’ existing trading systems. This integration means a seamless transition and continuity of business, so our clients can use our advanced capabilities without disrupting their existing workflows. Superior integration means overall efficiency and effectiveness of the trading process.
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