Cost of trading rising
Recent market volatility has caused spreads to widen and resulted in an increase in the average cost of trading Australian equities, according to new research by Investment Technology Group (ITG).
An analysis of the Australian equity market by ITG, an Australian and global broker, examines how global market trends are transforming the face of Asia-Pacific equity markets.
According to ITG, while spreads have reduced significantly in recent years as algorithmic trading and buy side use of direct market access tools have increased, recent market volatility has caused spreads to widen again resulting in an increase in the average cost of trading Australian equities.
“More specifically, the standard deviation of trading costs has increased, meaning there are more outlying trades having an effect on overall performance: in volatile markets, there is far more risk of incurring costly trades,” read the paper.
“Whilst volatility remains at current or potentially higher levels there is very little chance of spreads reverting to pre sub-prime levels … market volatility will be the prime factor in determining average bid/ask spreads for the Australian market in the foreseeable future.”
The paper said market volatilities’ substantial effect on bid/ask spreads highlighted the importance of adopting ongoing trade cost measurement and ‘best execution’ processes to limit any unnecessary or disproportionate trading costs in volatile markets.
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