How hedge funds and prop shops outsource their software needs

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Hedge funds and prop shops are usually at the forefront of the tech market when it comes to the solutions they utilize in their day-to-day operations. The financial sector has lots of requirements, some of which can be very strict. Privacy is a major concern for example, with various data protection laws that have to be followed to the point. The evolution of the fintech sector over the last couple of decades is hard to ignore at this point, and it can pay to keep a close eye on how the market is moving.

It’s particularly important to be aware of the solutions favored by companies operating in this field. There are several established leaders on the market, but various smaller companies have been able to see relatively good results with their own solutions too. Both sides offer their advantages and disadvantages. With large solutions that have been on the market for a while, you can typically expect a stable product that’s gone through a lot of testing. At the same time, smaller shops can provide more affordable alternatives that occasionally also experiment with cutting-edge technology. When enterprise-grade solutions cost starts from $500 per month per user, it’s not surprising that many organizations have started to explore the smaller corners of the market too.

Evaluating the full range of solutions available at the moment can take a lot of time and effort. That’s why it’s recommended to have an idea of what you want to use from as early as possible.

Typical Requirements in This Market

Software used by hedge funds and prop shops can vary wildly in features across the board. Yet some details tend to be persistent, and can be identified in most of the tools that are popular right now. Some of the most commonly sought-after features include:

  • A detailed CRM
  • Data retention and organization
  • In-depth, real-time analytics
  • Reporting tools

Many of the solutions that are popular right now have started to leverage artificial intelligence to various degrees as well. It’s a good fit for the fintech market, as it offers a lot of potential for analyzing large data sets and identifying patterns in them. We’re still relatively early in the use of these tools in this manner though, so it will probably take a while for some true AI-driven solutions to stabilize their positions on the market.

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Outsourced Solutions

Outsourcing a customized solution, or purchasing a ready-made one, remains a popular choice among many organizations. More than 50% of the companies on the global market choose to outsource their software development today. It comes with many benefits, including dedicated teams for analysis, development and support. This also brings the benefit of utilizing feedback collected from other users of the same platforms, which can result in a much faster improvement of their functionality across the board.

At the same time, there are some obvious constraints in this approach, and companies have to restrict themselves to the features already available in the tool. With an outsourced solution, this problem is alleviated to some extent, but it’s still not a perfect approach. For organizations without any in-depth requirements or too specific needs, this can work relatively well. Others should look into developing their own in-house solutions.

In-house Solutions

Custom-built software can get the job done right when there’s a need for advanced, custom-tailored features and other similar functionality. It can be more expensive and time-consuming to build on the other hand, and some of the features might not be on par with what’s available on the market as a whole at the moment.

It’s not uncommon to see companies focusing on a mixed approach, utilizing well-known and established solutions for their more general needs, while developing custom-made platforms for more specific requirements. This can work well with proper financial backing, but it does require some time to get the initial setup off the ground.

Common Problems and Their Solutions on the Current Market

  • Decentralized operation: it’s becoming more important than ever for the platforms used by hedge funds to provide decentralized access over a broad network. Working from home is on the rise, especially after the pandemic, and the nature of the work done by hedge funds often involves a global network of contacts. That’s why cloud-based solutions for things like like CRMs and document management have started to take such strong presence on the market. It’s very likely that we’re going to see this trend chased even further in the coming years, which makes it important for companies looking into their own solutions to prioritize it for future compatibility purposes.
  • Risk and performance analysis: with all the access we have to advanced analytical tools, advanced risk analysis is now something that people expect to get by default from the platforms that they use. With the help of AI-driven solutions – like customer analysis, identifying patterns in large data sets, background checks, live support and more – this is easy to implement these days, which is why so many of the popular platforms right now integrate such solutions on a deeper level.
  • Automation and algotrading: last but not least, solutions that provide advanced automation and algotrading features are preferred over more traditional ones. With the help of platforms like MetaTrader 5 and its 13 000 ready-made automated solutions, it’s easy for hedge funds to deploy the exact range of operations that they need, and to keep them running with minimal human intervention needed. Another benefit here is the strong MQL5 community it’s developed over a decade of presence on the market, with many helpful people ready to assist users in their issues. This is only going to get more advanced in the future, and while various platforms on the market have been exploring these options, only a few manage to live up to expectations right now, MetaTrader 5 being one of the more notable examples at the moment.
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Finding the Ideal Solution for Your Needs

Taking all of the above into account, finding the ideal solution for your organization will usually take some time and effort. You should probably ignore the in-house option for a while, until you’ve sorted through what’s available on the market already, and have identified some specific needs that you can’t sort out with the current range of available platforms.

The ideal solution will likely involve a combination of multiple platforms as we mentioned earlier. This makes it even more important to take your time and focus on exploring each available option to its full potential. Don’t be afraid to reach out to companies for quotes or guidance, either.



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