While some other asset classes may still be debating the efficacy of algorithmic trading, the debate appears to be over on the futures trading desks. According to new research from Tabb Group, algorithmic trading in futures markets is expected to expand at a fast rate over the next two years, with a 96 percent compound annual growth rate (CAGR) from 2011 to 2015.

According to its latest research report entitled Algos in Futures Markets: Shifting into High Gear, senior analyst Matt Simon writes that institutional buy-side firms are shifting from traditional voice-based or direct market access (DMA) order-execution methods to algorithms with increased sophistication.

Buy-side traders have come to the conclusion that a simple algo is not sufficient for all order types, according to a Tabb press statement. In order to achieve improved execution, they are evaluating the range of automated tools provided by the leading FCMs and vendors. These client demands are also providing revenue opportunities for brokers, technology providers and the exchanges that must support algorithmic trading, the statement continued.

For buy-side firms to stay competitive, says Simon, rather than relying on strategies that their head traders do not always understand or find difficult to use, theyre seeking more automated trading capabilities, leading to the use of this new wave of more sophisticated order types.

In a blog, Simon writes that any debate over the role of algos in futures trading is over. “The next phase of algorithm development will include smarter ways to trade and work through investment and trading decisions. Many long-only firms will continue to use futures algorithms primarily to hedge positions, but many will begin to experiment with using futures algorithms to gain alpha. These firms will require tools that not only help put money to work, but also mitigate trading risks across the risk profiles of different markets, he wrote on the Tabb Forum website.

The 15-page report can be downloaded from Tabb Group.