Trading Market Participants
Claudia Kerr, Head of Business Management at Euronext presents a few examples in this video.
Listen to the full interview, watch the video:
Who are the main trading market participants?
There are several types of market players involved in the trading workflow who interact with an exchange such as Euronext, with different roles and objectives. Within financial markets, there are three distinct categories: the buy-side, the sell-side and the liquidity providers.
- Buy-side can refer to institutions or individuals that are buying financial products for investment purposes. They are not directly connected to trading platforms, such as the exchange, and therefore access the market via an intermediary to execute their trades.
Buy-side firms can also create investment products that are listed on stock exchanges for them to be traded.
Finally, there are some buy-side firms who trade on their own account, and they are defined according to their execution strategy within the market. - Sell-side are the intermediary that facilitate the buying and selling of financial products for investors on a trading platform. They may also provide research and analysis to help their clients make informed investment decisions.
- Liquidity providers and market makers are institutions that provide prices in the trading order book in order to guarantee sufficient liquidity.
What is a broker?
The role of a broker-dealer (sell-side) is to facilitate trading by connecting investors that buy and sell, whether these are institutional or individual investors.
These are usually a bank, and they can vary from large international firms to smaller local boutiques. Brokers can either be directly connected to trading platforms, including stock exchanges like Euronext, or, in the case of some smaller brokers, outsource the execution of their flow to bigger brokers.
In short, they are the intermediary between the investor and the trading platform, routing the investors’ order for it to be matched, and therefore traded.
What is an asset manager?
Asset managers (buy-side) are trading firms, often banks, that manage the investment portfolios of individuals, corporations, or institutional investors such as pension funds and insurance companies. Their primary goal is to maximise the returns on their clients' investments.
Asset managers create a variety of investment products, such as funds (for instance a UCIT), ETFs, Structured Products, etc., that they can list (or issue) on an exchange for their clients to trade. In this case, they are called “issuers”.
They often have a long-term investment horizon.
What are market makers and liquidity providers?
‘Liquidity’ equals prices and counterparties to match with.
Market makers and liquidity providers are trading firms that trade on their own account, and their primary goal is to ensure that there is sufficient liquidity in the trading platform’s order book, by providing continuously buy and sell prices (or quotes) for securities. This helps to stabilise prices and ensure that buyers and sellers can execute trades efficiently.
Euronext has the largest and deepest liquidity pool in Europe, which means it is where there are the most investors and brokers trading. Many exchanges have deals with market makers / LPs for them to provide liquidity on their trading platform. This this is the case for Euronext, as we have many liquidity programmes that help to ensure superior market quality, or the best execution, for its end clients.
What is a hedge fund?
Hedge funds manage money from a limited number of investors, with high leverage – meaning using a lot of borrowed funds or debt - and aim at generating high returns by using more complex investment strategies with an algorithmic approach.
These involve taking both long and short term positions in different markets. In contrast to traditional asset managers, their investment strategies can result in higher risks.
What is a high-frequency trader?
HFTs are banks, market makers or hedge funds, that use algorithms and very advanced technology to execute trades at a very high speed. They often execute a large number of trades in a short period of time to capture small price movements.
What about individual investors?
Individual investors, or retail traders, trade with their personal funds. They don’t have direct access to trading platforms, so they typically trade through online brokers and use their own analysis and trading strategies.
There are many more players in the trading ecosystem, that enables trading through data, interfaces or connectivity, or that play a role once the trade has been executed, including the clearing houses and the central securities depositories.