This type of algorithmic trading is already having an important impact on execution and position size in the commodity hedge fund community, including metals.
These effects are likely to be short-term scenarios, with participants already starting to adapt their models to fit the new normal. In other words, keeping the edge.
But a new normal it is nonetheless becoming. Anyone hoping for a return to the trading days of 15 years, even ten years ago, is likely to be disappointed.
According to US regulator the Commodity Futures Trading Commission, automated trading now constitutes up to 70% of regulated futures markets. Similarly, automated trading now makes up around 80% of cash equities markets and 70% of foreign exchange spot markets.
The figure for the London Metal Exchange is currently much smaller. In its current discussion paper, the LME notes that 11% of 2016 volumes were from the systematic financial community, which...