Thursday, July 18, 2013

The future of Algorithmic Trading

Recently I have been pondering whether there is still a future in algorithmic trading in the US markets for new players. Several months ago I feared and forecasted that we may have reached the algorithmic precipice. Last year the SEC passed Rule 13H-1 which requires large trader whose transaction in NMS securities equal to or exceeding 2 million shares or $20 million during any calendar day, or 20 million shares or $200 million during any calendar month, to identify itself to the Commission and make certain disclosures to the Commission on Form 13H. The question is why does the SEC need to identify large volume traders in the markets if not to later overregulate, fine and shutdown? Or do they see a new trend in this business and wants to make sure they get their hands on it before it spirals out of regulatory control? In the past, we have seen that new regulations and requirements typically herald the eventual end of certain business (see my blog on the CBSX Series 56 requirement ending prop trading: http://dastrading.blogspot.com/2011/08/future-of-prop-trading.html). Their white paper clearly stated their goal of the new rule in Release No. 34-64976; File No. S7-10-10: “The large trader reporting requirements are designed to provide the Commission with a valuable source of useful data to support its investigative and enforcement activities, as well as facilitate the Commission’s ability to assess the impact of large trader activity on the securities markets, to reconstruct trading activity following periods of unusual market volatility, and to analyze significant market events for regulatory purposes.”

Another thought that came to my mind is whether there is enough volume in the market for the survival of any black boxes to continue to be successful. When you see Goldman Sachs, Barclays and other large investment banks who have formerly dominated the algorithmic space begin to offer tools to retail clients, you have to wonder what this means to the markets.  I read it to mean that they don’t have enough retail flow naturally because of an excessive saturation of black boxes and algorithms that have entered the markets. Now they have to compete against each other as well as with the smaller black boxes. You might be wondering how the average algorithmic trading strategy consistently makes money and what factor affects its longevity. The answer is simply mathematics (pun intended). If we all had the same formula for success then there would not be any successful people but just mediocre people. Success is measured based on someone winning or being ahead of the game. If we are all running in the same race, at the same speed, using the same technique and we all reach the finish line at the same time, are we all winners? For some to win, it seems they need to have prerequisite criteria in place to limit who can be allowed to run in the race and who can be allowed unfair advantages.

There does seem to be a correlation with the big banks’ decision to offer their strategies to retail clients and the US regulators’ new policies regarding algorithmic trading. Despite these indicators, algorithmic trading still sparks the interest of traders who have had some success at day trading or proprietary trading who want to transition into automation. Many of these algorithmic traders are looking for ways to enter the game via easy to program algorithmic systems. In response to that there has been a remarkable trend of the box trading automation firms emerging in the last two years, notably Trades Ideas, CoolTrade and most recently Equametrics. In the past it was really difficult for retail traders to transition to automation. There were so many variables in order to run an automated black box such as having the right collocation, coders, quants, data, equipment, capital invested, exchange connections, etc. Formerly most successful strategies needed to be collocated within the major exchanges in order to reduce latency on market data and order executions. The cost to collocate can be become very expensive and eats into the profit margin of this business model. However, firms, such as DAS|Inc., provide low latency solutions that reduce these costs for black boxes.
The exchanges have also decided to move in this direction by offering open source cloud based solutions. One such product is NYSE Euronext’s HD Tickerplant which was recently only offered to the European markets. We believe this product will be well received in the US Markets because of the change in the demographic of algo traders. The following are the key features of the product which will be offered through our networks:
• High density servers with at least 32 cores to be deployed at client site.
• NYSE Technologies Market Data Feed Handlers for ultra-low latency performance.
• Seamless integration with SuperFeed® for global market data.
• Data Fabric Middleware to publish data onto the client’s market data backbone.
• ITRS to monitor and manage the server and software.
• SFTI VPN for NYSE remote access and management.


In conclusion, I don’t think it is too late for the successful active trader to jump on the algo trading bandwagon. The keyword here is “successful.” The stock market is not a ride for the faint of heart or someone who may have an obscure strategy in his head that he believes will make money without a real history of success and back testing. This is a space where you must know that capital and human investment should not be discounted once a strategy is successfully implemented. Strategies needs to be as flexible and adjustable based on small changes in the market such as a new rule. And this can only be done by human interaction. 

Monday, June 3, 2013

Where Are the New Traders?

If you haven’t noticed yet, daytrading has been contracting a bit in the last few years. Some decide to blame algorithmic traders making it impossible for human traders to earn a profit; others blame the economy and shrinking middle class. Both are valid explanations, but a third possibility, that is often overlooked, is simply that new traders are not attracted to the stock market, brokerages, and other types of trading firms!
            As a software vendor and service bureau, DAS|Inc primarily operates in business to business commerce. There are only so many trading firms in the world who trade US equities and options, and there are many hurdles in spurring people to start new businesses, so often we find ourselves depending on our existing clients to expand their operations and attract new clients in order for us to expand our business. However, keeping abreast with the trading community, we have come to the conclusion that there are very few new traders. It appears that we and our clients have been attracting customers that have already been trading, but at different firms. This strategy may seem fine as we get new users on our system, but it also shows the users how easy it is to switch platforms and brokers, so what we perceive as customer loyalty may diminish. Nor does this create more human volume on the exchanges, which is necessary (in my opinion) for a better trading experience. Acknowledging that new customers are needed lets us and our competitors focus on productivity and improve our uniqueness rather than soliciting each other’s customers. It also generates more trading volume, which is good for everyone. We, as an industry, must do something to get completely new customers.
            So how can we go about getting new traders? First, we should acknowledge that people outside of the trading industry do not understand the stock market; some may even think it is an evil institution. Thus, advertising our specific services may be ineffective in attracting new clients to the trading industry. We should be advertising the fact that trading can be a wealth generating endeavor. The key term here is endeavor: despite what you may think about people of average intelligence, most people are savvy enough to ignore get rich quick schemes. Also, advertising advanced tools that are available is not helpful to those who do not know what they can be used for. Keeping this in mind, when starting new marketing campaigns, we should avoid trading jargon and also avoid seeming predatory. Then what would a new marketing campaign even involve? Well, if the aim is to get more people interested in this industry, advertisements aimed at creating awareness of the possibilities on the stock market while also emphasizing brand recognition should be the most effect. Using this method, new consumers will either come to you to learn more about the markets, or do their own research. Looking on the bright side, if the new traders you attract to the US exchanges ultimately choose to not employ your services, they become traders that your traders can trade against! If nothing, your new marketing campaign will at least create more profitable situations for your existing traders.

Friday, May 17, 2013

We have made it and it is a special thanks to our all DAS Supporters!


Dear DAS Supporters,
This year marks ten years of providing direct market access technologies to online traders. By offering low latency tools which empowers traders to execute orders on most exchanges, dark pools, market makers and smart order routers, we give our traders the edge high frequency traders use.
We pride ourselves in being one of the pioneers in the direct access trading industry. Before there was Direct Access Software, the average trader’s order took minutes to execute, today it can be done in microseconds, which is truly amazing innovation of our DAS Trader system. DAS Trader combines high speed orders with essential tools that will assist traders in getting best price executions and faster fills in the market than a regular online trading platform. Our trading platform was designed to give the active trader the same advantages as the big hedge funds, investment banks and their stock brokers. One of the most unique advantages to our infrastructure is our colocation in Nasdaq OMX’s datacenter and having high speed connectivity using fiber lines to all the major North American exchanges.

I have watched our company grow from having a few servers in our office to now having over 100 servers in the NASDAQ datacenter, with hubs and connection points throughout the tri-state exchanges hot spots.

I am happy to say that our first client who we has been on board 10 years ago with the DAS Trader platform is still a client with us today and it is a testament to our success.
I’m very honored and blessed to ring the closing bell at NASDAQ to celebrate this milestone in our company and technology’s history.
Thank you,
Karen Gentile
CEO & Founder

Friday, March 22, 2013

Network Issues


Dear Valued Clients and Friends,

We understand that you are extremely frustrated with our failures this month. We are very aware of your concerns, losses, and general frustration. This is a very serious situation for us as we pride ourselves on providing excellent tools for our traders to make profitable decisions every day, and we need to continue providing these tools to you. Here are the steps we are taking in the next week to resolve future issues:

1. We are in the middle of switching our backup internet providers as our current backup, as you know, cannot handle our volume of traffic. We have previously acknowledged it was inadequate and will have the new line in place next week.
2. We are getting a new networking staff. We hear your concerns and feedback, we are taking this seriously and are already in talks with networking professionals who have years of experience with networks similar to ours.
3. We are restructuring our network. The new network structure will seamlessly integrate our backup connections so you will not have to do anything on your part when there are network issues.

We sincerely thank you for your continued patience and dedication to DAS Inc.

Sincerely,

Karen Gentile
CEO & President

Wednesday, February 13, 2013

Using Multiple Layouts in DAS Trader Pro


Do you have multiple layouts you need for trading? Have different setups for equities trading and options trading? Or different configurations for when you are scalping and when you are position trading? DAS Trader Pro has two features that allow you to switch between these layouts with just a single click or keystroke.

The first way you can setup multiple desktop screens on DAS Trader Pro is by using our tabs feature, located at the bottom of your window.


As you can see, when you right click on the bottom bar, you have the option to add a new tab, remove a tab, or rename a tab you already have. I have different tabs for my equity trading (I left the name Default), my charts, options trading, and the admin features I need to use from time to time. The tabs pretty much work the same way as your web browser, so you can switch between them whenever you want. There’s an important detail about this tabbed trading though: it is streaming data for all tabs all the time! This feature is great when you need to switch between your layouts on the fly; however, this feature is not for you if you do not have a fast internet connection. Also, this setup keeps all of your tabs in one desktop file (the file ending .dsk that you use to save your layout).

If your internet connection isn’t very fast, you can use our hotkey feature to load a different desktop file. This hotkey will require you to have multiple desktop files. The advantage of this setup is that it does not stream in data for the multiple layouts you have, that way you will not be wasting bandwidth on symbols you are not currently watching. To use this feature, click Setup (or Settings) and then click Hot Key. In that window, click the “Add New Item” button. In that next window that appears, you can look under the Window Configuration command category for SwitchDesktop or you can type it yourself into the Script field. After SwitchDesktop, put one space and type in the name of your layout file (leaving out the .dsk portion). For example, one of my hotkey scripts is SwitchDesktop SeansLayout. Then assign a hotkey and click Commit at the bottom of the window. You’ll have to set up different hotkeys for each layout file you use. Once you have all of these keys setup, you’ll be able to switch layouts without having to do all of the clicking previous involved.

But here’s a third alternative: get a bunch of giant monitors and have it all in front of you at once!

Search This Blog

Loading...

Thomson Reuters - High Frequency Trading