Buy-side Equity trading desks are experimenting with a strategy that would have been unthinkable just a few short years ago: outsourcing some trades.
Once considered a tool for start-up funds, Outsourced trading (OT) is now being adopted by established Buy-side trading desks as a means of supplementing internal capabilities.
Trading desks have spent the last decade learning how to do more with less. Traders are being asked to navigate more venues, more regulation, more data, and more technology—often with fewer bodies and thinner margins. That constant pressure has created a willingness to experiment with new types of providers and to veer from traditional approaches.
“The same logic that once drove the adoption of algos and Electronic trading is now being applied to Outsourced trading,” said Jesse Forster, Senior Analyst in Market Structure & Technology at Crisil Coalition Greenwich and author of Outsourced Trading in Equities: The third channel. “OT providers are being layered in to add capacity, coverage, and infrastructure while keeping strategic control firmly in house.”
Filling Gaps, Not Replacing Traders
Today, at least 15% of Buy-side traders say they augment their desks with Outsourced trading providers.
“Outsourced trading providers are brought in to address overflow and coverage gaps, not to redefine the role of the Buy-side trader,” said Jesse Forster.
Instead of expanding headcount or investing in new technology, firms using OT can convert parts of the trading function into a service cost. This model aligns with the Buy-side’s preference for variable operating expenses, particularly when performance fees are under pressure. Traders are selecting OT providers based on the quality of operational support, responsiveness, and the relationship management providers deliver.
“Outsourced trading is quickly becoming a strategic pillar for established Buy-side desks seeking resilience, flexibility, and operational excellence,” said Forster.
Outsourced Trading in Equities: The third channel draws on the results of a recent Crisil Coalition Greenwich study in which the firm interviewed U.S. Equity traders about their daily workflow, broker selection and evaluation, technology platforms, commissions, technology budgets, and business practices.
The report traces the evolution of OT on Buy-side desks, analyzes current usage and trading volumes, examines the criteria desks use in selecting OT providers, discusses the primary hesitations desks have about the approach, and explains how OT fits into trading desk operating models.
Source: Crisil Coalition Greenwich
