Coherent Market Insights

Algorithmic Trading Market to Surpass US$ 5.48 Bn by 2031

Algorithmic Trading Market to Surpass US$ 5.48 Bn by 2031 - Coherent Market Insights

Publish In: Jul 08, 2024

Algorithmic trading market is estimated to witness exponential growth, owing to technological advancements and growing need for data-driven decision-making

Global algorithmic trading market is estimated to be valued at US$ 3.01 Bn in 2024, exhibiting a CAGR of 8.9% over the forecast period 2024-2031. Furthermore, growing adoption of advanced technologies like artificial intelligence and machine learning can drive the algorithmic trading market growth.

Market Dynamics:

Global algorithmic trading market growth is driven by growing need for data-driven decision making and technological advancements. Algorithmic trading leverages various quantitative and computational tools to analyze massive amounts of data at a rapid pace, which helps traders make smarter and faster investment decisions. This has boosted demand for algorithmic trading solutions. Rising integration of advanced technologies like AI and machine learning allows trading algorithms to become more sophisticated and autonomous. Technologies like deep learning enable trading algorithms to detect complex patterns in massive real-time data streams and execute trades autonomously. This self-learning ability of advanced algorithms is expected to disrupt capital markets and further accelerate the adoption of algorithmic trading solutions over the forecast period.

Growth of High Frequency Trading

Global algorithmic trading market growth is driven by rise of high-frequency trading. High-frequency trading involves algorithms analyzing data and transacting at extremely high speeds through electronic trading platforms. This allows traders to capitalize on tiny movements in asset prices in fractions of a second. Over the past decade, high-frequency trading has come to dominate stock markets. Significant portion of daily trading volume is now executed by algorithms and high-frequency strategies. This rapid growth in automated, high-speed trading boosts demand for sophisticated algorithmic trading platforms and solutions. Rising adoption of high-frequency trading can drive the algorithmic trading market growth.

Increasing Need for Automated Trading Among Institutional Investors

Increasing demand for algorithmic trading solutions from large institutional investors like hedge funds, asset managers, and proprietary trading firms can drive the market growth. These institutional traders handle massive order flows and portfolios. Manually trading such large positions is inefficient and risks missed opportunities. Algorithmic trading allows them to automate complex trading strategies, have their algorithms execute orders at machine speed according to pre-programmed rules and risk parameters. This enhances trading performance, reduces management costs, and ensures regulatory compliance. As institutional investors increasingly recognize the benefits of algorithmic trading, their growing investments in automated trading platforms and solutions can drive the market growth.

Regulatory Compliance and Cybersecurity Concerns Limit Adoption

Regulatory uncertainty and compliance risks can hamper the market growth. As algorithms take over a larger share of stock trading, regulators are strengthening rules around automated trading. Strict compliance requirements around testing, monitoring, and reporting algorithmic activity increase costs for vendors and clients. Algorithmic trades have caused some significant market events like the 2010 Flash Crash which spurred even tougher regulations. Complying with this complex regulatory environment limits the ability of some players to scale up in the space.

Cyber Risks Make Some Investors Cautious

Cyber threats can hamper the adoption of algorithmic trading in some segments. As trading platforms become more interconnected and algorithmic strategies more sophisticated, there will be high risk of hacks, glitches or technological errors. Even though vendors have stringent security protocols, high-profile breaches can occur. This understandably makes some investors and firms wary of outsourcing their full trading activities to algorithms or cloud-based platforms. Concerns around data security, funds safety and technological resilience discourage organizations from fully automating their trading.

Expanding into Cryptocurrency and Digital Asset Markets

Fast-growing cryptocurrency markets can offer opportunities for algorithmic trading companies. Cryptocurrencies like Bitcoin have very high trading volumes handled through algorithmic means on crypto exchanges. Bitcoins’ high volatility also enables significant opportunities for algorithmic strategies to gain profits from very small price movements. More sophisticated blockchain-based digital assets are also emerging that could be algorithmically traded. As the cryptocurrency ecosystem matures, it will provide opportunity for established algorithmic trading vendors to cross-sell their solutions.

Adoption in Emerging Markets

Selling solutions to institutional and individual traders in emerging markets like Asia, Middle East, Africa and Latin America can offer market growth opportunities. Per-capita algorithmic trading penetration remains low in these regions as compared to developed regions. But as electronic trading volumes rise, local traders will also seek ways to automate decision making and derive performance enhancements through algorithmic tools. This offer long-term opportunity for global vendors to tap into the under-developed emerging markets and gain new clients and regions rapidly.


Key Developments:

  • In June 2023, Virtu Financial, a global market maker and liquidity provider, introduced Alert+, a new workflow solution integrated within its POSIT Alert platform. Alert+ is designed to enhance the capabilities of POSIT Alert by providing automated routing to Virtu's Covert execution algorithm, enabling clients to more effectively access non-displayed liquidity in the market.
  • In June 2023, DoubleVerify, a leading software platform for digital media measurement, data and analytics, launched the DV Algorithmic Optimizer. This cutting-edge measurement and optimization offering was developed in an exclusive partnership with Scibids, the global leader in artificial intelligence (AI) for digital marketing.
  • In June 2023, KuCoin Futures, the derivatives trading platform operated by leading cryptocurrency exchange KuCoin, announced a new API partnership with Kryll, a pioneering platform for the creation and deployment of automated trading bots.
  • In October 2022, the Multi Commodity Exchange of India Limited (MCX), the country's first listed commodity derivatives exchange, extended its software support contract with 63 Moons Technologies for an additional three months. This was the third time MCX had approached 63 Moons to prolong the arrangement, after the long-term contract between the two companies ended on September 30, 2022.
  • In October 2022, Refinitiv, a subsidiary of the London Stock Exchange Group (LSEG), unveiled a global digital onboarding solution designed to help businesses streamline their customer onboarding processes in a secure, personalized, and seamless manner. The new offering provides organizations with a fully configurable user interface, enabling them to deliver a branded product application process through web, mobile, and API channels.
  • In March 2022, Cowen Inc., a global diversified financial services firm, launched an enhanced algorithmic trading solution called the "Inaccessible Liquidity Adjustment" to help institutional clients adapt to the evolving U.S. equity market structure impacted by higher levels of retail trading.

Key Players:

63 moons technologies limited, AlgoTrader, Argo Software Engineering, Citadel LLC, FlexTrade Systems, Inc., Hudson River Trading, InfoReach, Inc., Lime Trading Corp., Marquee by Goldman Sachs, MetaQuotes Ltd, Optiver, Quanthouse, Refinitiv Limited, Software AG, Symphony

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