Buyside firms increased trading desk budgets by 7% amid the Covid-19 upheaval last year, according to a new report by Coalition Greenwich – Buyside Trading Desk Budgets in 2021: Technology Pays Off.
The report notes that as traders were forced to migrate screens to living rooms, bedrooms and home offices around the world, buyside firms directed more than 40% of that amount to technology. Despite scepticism about the efficacy of trading away from the bustle and rigorous infrastructure of the trading floor, the shift to trading from home went off mostly without a hitch.
The report presents the results of the annual Coalition Greenwich Market Structure & Trading Technology study in which 418 buy-side traders across the Americas and EMEA were interviewed in the second half of 2020
“That success can be attributed in part to the continuous increase in technology investments, which have been growing as a share of overall trading desk budgets since 2015,” says Brad Tingley, Research Manager in the Coalition Greenwich Market Structure & Technology group and author of the report.
He noted that in 2020, the average buyside trading desk allocated 59% of its overall budget to people (through compensation) and 41% to technology. However, over the years, the spend targeted to technology has been creeping up.
The study shows that the typical buyside firm spends $2.45m per year on their trading desks, including staffing and technology.
The average trading desks includes 6.5 traders, roughly flat from 2019.
Unsurprisingly, there were differences between the asset classes, Equity trading desks saw the biggest rise – 12% – in 2020 to $2.67 m while FX trading also increased their budgets, although more modestly than their equity counterparts, by 3% to $2.56 m.
By contrast, fixed-income desks experienced a slight decrease, with the average trading desk holding a $1.95m budget, down 1% from 2019.
It attributed this slight anomaly to the relative underperformance of fixed-income hedge funds compared to their peers employing long/short equity strategies.
For instance, the Eurekahedge Fixed Income Hedge Fund Index was 456 at the end of 2020 compared to 582 in the Eurekahedge Long/Short Equity Hedge Fund Index (indices are base weighted at 100 at December 1999).
Breaking out the expenditure, market data terminals represent the single biggest technology cost, consuming 35% of the technology budget.
On equity trading desks, however, the largest tech expenditure is for order management systems, which comprise 27% of average technology spending.