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Understanding Portfolio Trading


Li Renn Tsai

Head of Product and Sales, Asia, Tradeweb


This article originally appeared in Global Trading here.

What Is Portfolio Trading?

Portfolio Trading is a solution that gives asset managers the ability to put together a basket of bonds to buy and/or sell, and trade them all together as a single package deal. Bulk trades of bonds can generate cost savings, mitigate operational risk, and reduce market slippage. Tradeweb was the first trading platform to offer electronic portfolio trading for corporate bonds.

How Does Portfolio Trading Work?

Bonds within a portfolio trade will typically encompass both liquid and illiquid instruments with varying credit quality and durations. The basket is typically sent to a limited number of dealers for negotiation, and once the deal is done with a single counterparty, each line item is fed back to the client’s order management system, while benefitting from straight-through processing and reporting efficiencies. 

What Problem Does It Solve?

Prior to Tradeweb’s electronic solution, market participants executing bulk trades of several bonds in various sizes would need to trade each bond individually. The process would require finding the right counterparty, usually over the phone or chat, and ensuring pricing is accurate, a process that involved hours of trawling through spreadsheets and endless back-and-forth before the buy-side was able to fully complete the transaction.

By using our portfolio trading solution, clients are able to break through to a better trading experience:

• Accessing greater liquidity

• Minimizing information leakage

• Improving certainty of execution

• Trading less liquid credit instruments

• Reducing workload and operational risk

• Gaining valuable insight from supporting data and analytics

• Trading credit portfolios at the close – on price or on spread

Enhance your ability to shift portfolios and tailor risk, especially in combination with other protocols and ETF, CDX, and iTraxx trading. It's the end of emailing spreadsheets and lengthy negotiations – your existing OMS integration is all you need to get these trades done quickly. 

What Differentiates Tradeweb?

We are uniquely positioned to develop technology such as portfolio trading due to the depth and breadth of our markets and client base. We serve approximately 2,500 clients in more than 65 countries. On average, we facilitated more than USD1 trillion in notional value traded per day over the past four quarters. 

Portfolio trading took the credit world by storm. Many sell-side participants active in the credit space now have portfolio trading desks. In addition, we have seen clients from real money managers to hedge funds, pension funds to sovereign wealth funds, increasingly use portfolio trading to implement a range of use cases. 

At the same time, clients are increasingly taking a multi-asset approach to trading, and Tradeweb, as the only electronic trading venue that has both a market-leading ETF platform and a multi-faceted global credit offering with retail, inter-dealer and institutional e-marketplaces, is uniquely positioned to build solutions for these increasingly linked asset classes.

What Enhancements Has Tradeweb Recently Added to Portfolio Trading?

Since launching portfolio trading solution in January 2019, we have not stopped expanding and enhancing this tool. Our approach has always been to listen to our clients and provide them with what they need to get their business done. 

Following a recent enhancement, clients can now electronically execute portfolio trades at end-of-day prices, enabling them to manage what are often their largest and most critical credit trades more efficiently. Tradeweb began rolling out Trade at Close functionality in July 2021, with nearly USD13.9 billion in trading facilitated by August 2022 month-end. 

This year, we also launched a series of pre-trade analytics providing a consolidated view of factors clients find useful considerations when constructing and deploying portfolios. These include: 

  • Axes – Axe coverage score indicates what proportion of a user’s proposed portfolio is covered by axes/inventory available from relationship dealers at the time of submission, adjusted for the client’s chosen axe tolerance 

  • Streams – Streaming coverage percentages indicate level of involvement of each relationship dealer in proposed basket of ISINs 

  • Liquidity Scores – Directional liquidity scoring shows liquidity profile of proposed portfolio and contextualizes dealers’ axe and stream coverage by splitting these based-on liquidity score buckets 

  • Sector Split – Shows sector breakdown of proposed portfolio, indicating degree of diversification 

  • Dynamic Dealer Ranks – Shows enabled portfolio dealer accepted volume rankings for a client’s chosen timeframe 

So... Why Try Portfolio Trading?

Greater flexibility. More liquidity. Efficient execution.