Fight the Machines

As we all know, equity trading has forever changed.  Bulge bracket firms are breaking up and dismantling their trading desks.  Many of the “sales traders” at these firms are moving on to smaller, boutique brokerage firms where they hope to establish a book of business with their clients that they covered at their previous firms.  Relationships still matter on Wall Street.  But so does execution.  Many of you have probably seen the monk e-mail going around Wall Street where the sales trader calls on one of his old clients to get some business.  If you missed it , here it is:

The question that the buyside trader must ask himself now is what value is this sales trader bringing to the table now that he is no longer attached to a bigger firm.  No longer do you get the first call on research, gone are the days of capital committment, IPO allocations are a thing of the past.  So now when you give your order to that sales trader, where does it go? Is a skilled trader executing your order and watching out for all the pitfalls that electronic trading has brought to the market? Or , is your order merely getting placed into the brokers algorithm as the sales trader sits back and watches the machine do all the work?  Be very careful because there are alot of other predatory algos and HFT firms that are also watching your order.  Not only are they watching but they are taking advantage of your order and profiting from it.  Sure, at the end of the day you get your fill near the VWAP.  But how much better could that fill have been if you actually had a skilled execution broker working your order and fighting the machines .