Introduction
The contemporary sphere of systematic trading is a dynamic environment that is influenced by emerging trends in the financial industry and responds to changes in the political, economic, and social sectors. In this regard, specific difficulties appear, which pose risks for the parties involved and create potential opportunities for reorganization. In particular, hedge funds, which are investor partnerships, are often associated with the difficulties of safeguarding assets in an unstable market situation. As an example of challenges that can be transformed into strategically successful improvement mechanisms, investment risks and the lack of appropriate regulation can be mentioned.
Challenges in the Systematic Trading Industry
Traditionally, hedge funds are considered high-risk and unstable investment tools. The desires to safeguard assets and distribute financial resources are reasonable and natural, but in conditions of economic fluctuations, threats to investments arise. In particular, a narrowly targeted investment strategy can potentially lead to enormous losses due to changes in market trends or other shifts that entail the redistribution of roles in the financial industry. Hespeler and Loiacono (2017) note that if only one tactical development scheme is adhered to, investors may not expect an impending failure or another unstable situation, for instance, the historically significant crisis of 2007. This, in turn, is fraught with the loss of positions and a decrease in the value of funds. Even a balanced work program may be ineffective due to increased volatility and falling demand for specific goods or services in which significant funds have been invested. Therefore, even sustainable market participants should take into account such a potential challenge.
Another significant risk is the insufficiently effective regulation of the trading industry. Despite the fact that many participants in this market seek to distance themselves from control boards and create individually functioning projects, the absence of an appropriate regulatory mechanism may affect the situation in the financial industry adversely. In particular, competition among individual funds and programs may be conditional since large market participants have potentially higher opportunities and prospects for strengthening their businesses. According to Hespeler and Loiacono (2017), the monitoring of risks by the responsible authorities can have a positive effect on the access system to trading and different stakeholders’ development perspectives. At the same time, due to trends in the market economy and globalization, responsible agencies find it difficult to organize a reliable and effective control program. Thus, high investment risks and the lack of productive regulation are potentially significant challenges in the modern systemic trading industry.
Significance of the Mentioned Challenges
The significance of the aforementioned challenges lies in an opportunity to secure the trading industry through relevant reorganization measures. For instance, in order to protect investments, stakeholders should plan their hedge fund development strategies carefully and have alternative working mechanisms in case of a crisis. Addressing the problem of inadequate regulation can eliminate unfair market competition and secure start-up projects by providing equal opportunities. In addition, equilibrium may be achieved, which will influence the global economy positively. As a result, the given challenges can become opportunities and backgrounds for valuable changes. Otherwise, any fluctuations in the economic, political, or social sphere can lead to unforeseen situations and losses, including blocking investments and a critical increase in volatility.
Conclusion
Investment risks and the lack of appropriate regulation are the challenges of the contemporary systematic trading system. Both problems presented may be transformed into opportunities in case of competent control and the implementation of appropriate mechanisms for monitoring economic, political, and social trends. The failure to address these challenges can lead to significant losses, and individual historical examples prove the importance of maintaining appropriate development programs.
Reference
Hespeler, F., & Loiacono, G. (2017). Monitoring systemic risk in the hedge fund sector. Quantitative Finance, 17(12), 1859-1883. Web.