Brokers also perform algorithmic trading or provide such functionalities to their clients. Some of them have in-company development departments, whereas others make use of vendors as third party technology firms.
Broker-dealers & interdealer brokers
Broker-dealers trade on their own account (i.e. ‘company account’), not on behalf of clients. Their ‘internalisers’ are heavily dependent on sophisticated algorithms. Next, interdealer brokers mediate on behalf of clients to accomplish deal-making. They help their clients to find a counterparty; thereby trading on the account of the client (i.e. ‘client account’). Alternatively, they provide their client with access to an exchange (or other trading platform) via their own membership. Interdealer brokers are tasked by their customers with finding liquidity in a complex, fragmented market, achieving best execution, and/or minimising information leakage and other implicit costs. To meet these goals, brokers use (and provide their clients with) a wide range of execution algorithms.
Order execution algorithms
Brokers apply algorithmic trading in various ways. The objective is typically to enhance the brokerage services provision, for instance by the minimisation of market impact, to lower transactions fees or to boost the fill rate.