Reducing risk is everything in today’s market and avoiding unnecessary buy/sell delays can be an advantage – helping you mitigate risks and maximise portfolio performance.
The ability to transact in real-time is a powerful tool in any adviser’s arsenal, but many advisers are likely unaware that not all platforms offer real-time execution capability. Instead, many platforms typically rely on volume-weighted average price (VWAP) which averages the asset price over a day’s trading – using both share price and volume of shares traded. Due to various platforms having restrictive cut-off times, there may be extensive delays between when an order is placed by an adviser, and when it’s executed, resulting in a substantial difference in price.
How does it work?
Real-time execution means if you place an order at 11:30am, the order goes to market at 11:30am. This greatly reduces the risk of losses due to delays in executing the trade idea, allowing advisers to better manage market timing risk on behalf of their clients and potentially enhance overall portfolio performance.
Every adviser takes their duty to act in their client’s best interests with the utmost importance and providing their clients with the best possible investment outcomes. Real-time execution capability should not be an optional extra – it should be a must-have.
Managing market volatility
Markets move fast, so waiting hours or even minutes can make a significant difference in the eventual return the investor receives. Investing is challenging enough! It pays to focus on mitigating risks for clients, not taking on additional ones.
One thing that is certain about investment markets is that they are inherently uncertain. Real-time execution can help advisers and their clients manage market risk and react quickly when stock prices rise or fall, before the market is fully impacted.
It’s not just downturns where real-time execution can make a difference, it also affords investors access to take advantage of upswings and invest promptly for optimal results.
When an opportunity appears, speed of execution is critical to maximise potential returns. As more investors rush to take advantage of the same opportunity, prices will potentially rise as trade volumes go up. This is the true competitive advantage of real-time execution.
Implicit & explicit costs
Cost is an important factor for any investor – ideally, we all want to keep investment costs as low as possible for clients.
It’s easy to focus on transaction costs but this can be misleading because transaction costs are only part of the picture when it comes to the whole cost of a trade. In reality, there are two different types of costs – implicit and explicit costs.
Explicit costs are the transaction costs that are paid on each trade. These are easy to measure and compare and many investors focus on keeping them as low as possible without considering the full investment cost.
Implicit costs are harder to measure and include market impact and the effect of timing risks. Timing risk can create additional costs where a stock price moves before an order can be executed. This is where real-time execution can help. By reducing the timing risks, you can minimise the market impact and potentially decrease your implicit costs while enhancing gains.
Better client experience
Real-time execution supports all forms of trading across domestic equities, international equities, fixed income and FX.
ETF trades may involve a few additional steps in the process, but the principle is the same – to reduce the amount of time between the decision to buy or sell, and when that decision is executed.
In addition to this, real-time execution gives clients more control and certainty over pricing. They can choose to buy or sell when they want, and know exactly what they’re getting. They also know that as an active adviser, you’re targeting the best price and not simply accepting the price you’re given. This level of transparency can help build confidence between client and adviser, in turn leading to greater retention and referrals.
We live and work in an on-demand world, and investing is no different. Utilising responsive and flexible transacting capabilities is an important ingredient of successful investing.
To achieve this, you will need access to a reliable, robust platform like Mason Steven’s, to make that your competitive advantage.
Please reach out to the team at Mason Stevens to learn more.