The rationale for In House Trading
Many asset managers choose to execute trades using their own internal trading staff. For some firms, an in-house trading model offers a high degree of control, close alignment with portfolio management, and direct ownership of execution outcomes.
There is no single right answer when it comes to trade execution. The suitability of an in-house model depends on a range of factors including fund strategy, scale, liquidity profile, asset class mix, geographic reach, and internal resources. For this reason, in-house trading is best considered as part of a broader review of execution options rather than as a default position.
Firms that favour in-house trading often value the ability to prioritise orders internally, respond quickly to market conditions, and embed their investment philosophy directly into execution decisions. Close day-to-day interaction between portfolio managers and traders can be beneficial, particularly for strategies where timing, discretion, or market sensitivity play an important role.
A key consideration in any in-house model is the separation of portfolio management and trade execution. While portfolio managers are often capable traders, their greatest value typically lies in idea generation and portfolio construction rather than execution mechanics. In our experience, the opportunity cost of portfolio managers executing their own trades increases as their skill in alpha generation increases. The same principle applies when traders are required to operate outside their core asset classes, geographies, or time zones. Execution outcomes are generally strongest when individuals are focused on what they do best.
Running an in-house trading function involves significantly more than employing traders. Firms must also support the full operational, regulatory, and governance framework that surrounds execution. This includes trading systems and market connectivity, broker and counterparty management, best execution monitoring and benchmarking, transaction cost analysis, compliance oversight, documentation, and reporting. Business continuity, resilience, and succession planning are also critical considerations, particularly as firms grow or diversify.
Best execution governance is a central responsibility for firms operating in-house trading desks. Regulators and clients increasingly expect firms to demonstrate not only that best execution policies exist, but that they are actively used to monitor outcomes and drive improvement. This requires clear accountability, appropriate benchmarks, effective committee oversight, and the ability to evidence decision-making from order inception through to post-trade review. Strong governance frameworks are therefore an essential component of any successful in-house trading model.
As firms evolve, a purely in-house approach can come under pressure. Expanding into new asset classes, covering multiple time zones, managing peaks in trading activity, or dealing with staff absences can all strain internal resources. Maintaining resilience while controlling costs can become increasingly challenging, particularly where specialist expertise is required on an intermittent basis.
For these reasons, many firms now view in-house trading as one component of a wider execution strategy rather than a binary choice. Some retain core internal capability while supplementing it selectively, while others periodically reassess whether their internal model remains aligned with their objectives, resources, and risk profile. Treating execution structure as something to be reviewed and refined over time, rather than fixed, is increasingly common.
Ergo Consultancy is execution-process agnostic. We do not provide execution services, technology, or brokerage, which allows us to assess in-house trading arrangements objectively and without commercial conflict. We work with firms to review existing in-house models, identify strengths and limitations, assess scalability and governance, and support informed decisions about whether to build, enhance, or complement internal execution capability. Our role is to provide independent challenge, practical insight, and clarity, enabling firms to make execution decisions they can evidence, defend, and stand behind.
There is no single right answer when it comes to trade execution. The suitability of an in-house model depends on a range of factors including fund strategy, scale, liquidity profile, asset class mix, geographic reach, and internal resources. For this reason, in-house trading is best considered as part of a broader review of execution options rather than as a default position.
Firms that favour in-house trading often value the ability to prioritise orders internally, respond quickly to market conditions, and embed their investment philosophy directly into execution decisions. Close day-to-day interaction between portfolio managers and traders can be beneficial, particularly for strategies where timing, discretion, or market sensitivity play an important role.
A key consideration in any in-house model is the separation of portfolio management and trade execution. While portfolio managers are often capable traders, their greatest value typically lies in idea generation and portfolio construction rather than execution mechanics. In our experience, the opportunity cost of portfolio managers executing their own trades increases as their skill in alpha generation increases. The same principle applies when traders are required to operate outside their core asset classes, geographies, or time zones. Execution outcomes are generally strongest when individuals are focused on what they do best.
Running an in-house trading function involves significantly more than employing traders. Firms must also support the full operational, regulatory, and governance framework that surrounds execution. This includes trading systems and market connectivity, broker and counterparty management, best execution monitoring and benchmarking, transaction cost analysis, compliance oversight, documentation, and reporting. Business continuity, resilience, and succession planning are also critical considerations, particularly as firms grow or diversify.
Best execution governance is a central responsibility for firms operating in-house trading desks. Regulators and clients increasingly expect firms to demonstrate not only that best execution policies exist, but that they are actively used to monitor outcomes and drive improvement. This requires clear accountability, appropriate benchmarks, effective committee oversight, and the ability to evidence decision-making from order inception through to post-trade review. Strong governance frameworks are therefore an essential component of any successful in-house trading model.
As firms evolve, a purely in-house approach can come under pressure. Expanding into new asset classes, covering multiple time zones, managing peaks in trading activity, or dealing with staff absences can all strain internal resources. Maintaining resilience while controlling costs can become increasingly challenging, particularly where specialist expertise is required on an intermittent basis.
For these reasons, many firms now view in-house trading as one component of a wider execution strategy rather than a binary choice. Some retain core internal capability while supplementing it selectively, while others periodically reassess whether their internal model remains aligned with their objectives, resources, and risk profile. Treating execution structure as something to be reviewed and refined over time, rather than fixed, is increasingly common.
Ergo Consultancy is execution-process agnostic. We do not provide execution services, technology, or brokerage, which allows us to assess in-house trading arrangements objectively and without commercial conflict. We work with firms to review existing in-house models, identify strengths and limitations, assess scalability and governance, and support informed decisions about whether to build, enhance, or complement internal execution capability. Our role is to provide independent challenge, practical insight, and clarity, enabling firms to make execution decisions they can evidence, defend, and stand behind.