How Trumid Will Change Bond Trading Forever

Trumid

Finance is an ever-evolving field. After all, the current infrastructure supporting financial transactions throughout the United States and the rest of the world is not perfect, meaning that there is a constant need for innovations and inventions to step up with a solution. By doing so, they can expect to earn substantial rewards, while also making financial transactions that much more effective and efficient for their users, thus ensuring nothing short of a win-win outcome.

Trumid is an excellent example of this principle in action. In short, the people behind it saw a problem in their particular market, came up with a potential solution, mustered the resources needed to implement it, and started selling its services to interested individuals. Although the inherent challenges to predicting financial outcomes make it difficult to say what will happen with Trumid in the longer term future, it seems probable that it will continue to be met with success in the nearer term. So much so that it will have a significant effect on its particular market, which makes it something that interested individuals should take note of.

What Does Trumid Do?

Trumid2

Trumid runs an all-to-all electronic trading platform for corporate credit, which means corporate bonds as well as corporate credit default swaps. (1) This is important because the previous infrastructure for corporate credit resulted in serious liquidity issues for the market, which make it more difficult for both the entities interested in seeking out sources of credit as well as the entities interested in capitalizing upon the investment opportunities presented by sources of credit. With its electronic trading platform, Trumid seeks to facilitate financial transactions in the market for corporate credit, thus making its operations that much smoother for its participants.

Trumid strives to achieve this ambitious goal in a number of ways. For example, it has opened its electronic trading platform to a wider user base than otherwise possible, which in turn, means that corporate credit has become more liquid because there is now more movement in the corporate credit market. Furthermore, Trumid practices what it calls swarm trading, which means that it plans to encourage the liquidity of the corporate credit market by holding well-publicized sessions for particular categories of corporate credit at particular times while also stopping the trade of other categories of corporate credit in those times. (2) This way, entities that are interested in a particular kind of corporate credit will have a much easier time coming upon other entities interested in the same kind of corporate credit, thus resulting in a higher number of financial transactions as well as higher liquidity because of their mutual interests.  This is something that is the basis of not just financial transactions, but also economic transactions as a whole.

Finally, it is important to note that Trumid’s choice to use an electronic trading platform rather than something older and more outdated comes with significant benefits as well. After all, an electronic trading platform automates most of the more tedious and time-consuming tasks that trading needs to continue functioning, thus freeing up productive resources that can be put to much better uses elsewhere while also eliminating potentially painful errors that can be introduced by human mistakes. Furthermore, an electronic trading platform is much more convenient than its counterparts, thus bringing in more interested entities and thus in the long run, a more liquid corporate credit market.

Summed up, it is clear that Trumid has thought out its plans for solving the problem that it sees in the corporate credit market, which should come as no surprise considering that its top ranks are filled by people who have considerable expertise and experience in their chosen markets.

Why Is Trumid So Important?

Bond Trading

Trumid is important for the simple reason that there is a real problem with low liquidity in the corporate credit market. (4) For people who are unfamiliar with what liquidity means as well as why liquidity matters, it is the speed at which an asset such as corporate credit can be converted into cash. For example, real estate properties are often considered to be some of the least liquid assets out there because selling them is a series of processes that can take months and in some cases, even years to complete. In contrast, cash equivalents such as commercial paper and money market funds can be converted into cash with maximum ease and minimum effort, which is why they are called cash equivalents in the first place.

Low liquidity in a market means that an asset cannot be either bought or sold at a fast speed and without having an impact on the asset’s price. (5) Generally speaking, low liquidity means there are too few transactions happening in that market, whereas high liquidity means that there are too many transactions happening in that market. Unsurprisingly, low liquidity has a number of unpleasant side effects, which range from increased riskiness because of unstable prices to simple inconvenience whenever someone wants to either buy or sell the asset. In turn, these unpleasant side effects can have a knock-on effect on the number of transactions happening in the market since they make people even less interested in conducting them because of their concerns of running into said effects.

Further Considerations

Based on this, it seems safe to say that what Trumid is doing will have a positive effect for the corporate credit market by speeding up the rate at which financial transactions happen but not so much so that it will cause other unpleasant side effects than those associated with low liquidity. However, it remains to be seen whether Trumid will continue riding on its current wave of success or be surpassed by other companies with an interest in increasing liquidity in the corporate credit market as well.

After all, now that Trumid has proven it to be a profitable project, other people with similar projects and similar goals will have even more reason to jump in, bringing with them their own expertise and experience as well as the resulting refinements from lessons learned by observing Trumid’s current experiences with the market. Still, no matter what happens, the corporate credit market is bound to be a more interesting place in the times ahead.

References:

  1. https://www.trumid.com/index.html
  2. http://marketsmedia.com/trumid-to-swarm-corporate-bond-market/
  3. https://www.yieldbroker.com/our-markets/advantages-of-electronic-trading/
  4. http://www.businessinsider.com/fears-over-market-liquidity-have-vanished-2015-8
  5. http://www.investopedia.com/articles/basics/07/liquidity.asp

Disclaimer: I am an active investor in Trumid

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