Automated Trader Magazine Issue 22 Q3 2011
Interesting, isn’t it, how sometimes a dominant theme can emerge from nowhere, and then – before you know it – start turning up everywhere? We never actually decided to make this the ‘future of technology’ issue, and there was never an editorial meeting at which we sat down and discussed our planned coverage of AI, machine learning, long-term IT decision-making and above all, how best to build longevity into an IT infrastructure. But if you’re looking for new ideas, fresh thinking, perhaps some immediate action points but certainly some long-term strategic planning questions and answers – well, that’s the issue we seem to have built.
Or rather – our contributors have built. The key, really, is to go to the people who know, and let them speak for themselves. Read, for example, Peter Wiesing, CEO of Global Arbitrage Group on page 6. Peter made his first appearance in Automated Trader in our ‘Buyside Beat’ feature (Q1 2011 page 18), and I know I can speak for the whole team when I say simply: he’s back by popular demand. Sonia Schulenburg, CEO of Level E Capital, joins us on page 24. Dr Schulenberg is, as the introduction to that feature puts it, the principal human intelligence behind the AI of the MAYA Fund, and perhaps I’ll just say this: if a machine is going to learn effectively, it needs to start with a good teacher. Go to page 24.
It was a great pleasure – indeed, a thought-provoking great pleasure - to read Carl Ververs, Head of Product Development at RTS Realtime Systems, on how to discover a technology solution – no, more than that, how to discover, design, devise, build a technology strategy, infrastructure, solution, model, architecture (all of it, really) that will not only deliver now, but keep on delivering into the future. This is insight in depth, based on long experience, and you’ll find it on page 36.
It helps, of course, to have a Founder and Chairman – and for much of this month’s content, a lead interviewer – who has been applying automation to trading pretty much since pocket calculators were invented. Andy Webb asked many of the questions this month, and I think you might agree with me that a good interview becomes a great interview when both parties are like-minded, experienced professionals sharing issues that they consider (a) fascinating and (b) personally and professionally mission-critical. Andy turns up again at the head of his Wrecking Crew on page 59. They’re trying to break IB-MATLAB, and I’m happy to say – spoiler alert – that they don’t succeed.
Finally – to go back to this page’s theme about asking the people who know – may we ask you a few questions? Turn to page 45. After the success of our Algorithmic Trading Survey last year, it’s here again in 2011. If – as it was for me – your reaction to this is something like: don’t we do that all the time, talking to people, asking them questions? If, as I say, that’s your reaction – yes, we do, and the results are interesting (just read this issue). But this is a readership-wide project, we’ll be writing up the results, and yes, I think that feature might just be very interesting indeed. I hope you’ll participate.
- Brain training
Peter Wiesing is founder and CEO of Global Arbitrage Group. He has a background in brain research, a track record in the successful application of machine learning to futures markets, and ambitions to get into hedge funds and HFT. Andy Webb went to meet him.
- The Automated Trader Interview
Sonia Schulenburg is CEO of Level E Capital, and thus the principal human intelligence behind the MAYA Fund, which uses 'cutting-edge advances' in artificial intelligence to make its investment decisions. The fund has been fully invested since January 2011. Dr Schulenburg says: "Since then we have been proud to be ranked consistently in the Top 10 Long/Short Equity funds by the global hedge fund databases we report to, both in performance and low volatility." That's quite something, and William Essex went to find out more.
- Just Showing Up "On Time" Isn't Enough
Recently, many of our client conversations have focused on high-frequency latency arbitrage. The concern: many order routers do not compensate for differences in the distance to the various market venues. Thus, orders to several market venues sent at the "same time" arrive at their destinations at different times. These discrepancies may provide an opportunity for high-frequency algorithms that make markets simultaneously on several exchanges to exploit timing differences by cancelling some orders after the first one is filled.
- Tech's message
In the first of a new series of interviews in which key figures address the technology decisions we have to make - today - to ensure the long-term survival of our businesses, Carl Ververs, Head of Product Development at RTS Realtime Systems, talks to Automated Trader about today's challenges, tomorrow's solutions, the questionable goal of system-wide speed, and where to look for tried-and-tested answers to the hardest long-term tech questions.
- High Frequency Trading: One Size Does Not Fit All
High frequency trading has already evolved to the point where it actually covers multiple sub-disciplines. For some of these, latency is still the be all and end all, while for others it is just one of many factors that will determine a trading strategy's success. This evolution means that the sellside challenge has also evolved. As Andrew Morgan, European Head of autobahn Equity at Deutsche Bank explains, the sheer diversity of high frequency traders means that a far more flexible approach is now required.
- EBS: Equitable Trading
Since its original incarnation in 1993, EBS was for many years a bank-only manual trading platform for FX. Then between 2004 and 2006, it underwent two major changes - the introduction of buyside counterparties and API trading. Automated Trader’s founder, Andy Webb, talks to Brian Andreyko, EVP Global Head of FX Product and Development, about EBS’s automated evolution past, present and future.
- Covering All the Bases
Priorities change; to be truly effective, today’s platforms for trading model design have to cover a wider and more varied number of bases than just five years ago. Development speed, lower cost, flexible security models, tighter execution environment integration and stringent control of operation risk are all now major priorities. Michael Unetich, ADL product manager at Trading Technologies, outlines one way to address them all. Michael co-founded TickIt Trading Systems and served as its CEO until Trading Technologies acquired the company in June 2010.
- The Virtue of Simplicity
As we keep pointing out, automated/algorithmic trading does not automatically imply ultra high frequency trading. Plenty of Automated Trader traders we talk to seem to do just fine deploying automated models that hold positions for periods ranging from seconds to days. At the same time, rather a lot of them appear to use MATLAB and more than a few use Interactive Brokers. All of which rather inevitably led the Wrecking Crew and Automated Trader’s Founder, Andy Webb, to take a look at IB-MATLAB...
- Enhancing network transparency
Vassilis Vergotis, head of Eurex's office Americas explains the exchange's transparency statistics for member firms and how the mutually beneficial information policy resonates with high-frequency customers.
- Sellside Round Table
After Q2’s fascinating discussion of the distinct characteristics of FX algo usage, evaluating the critical differences between FX and other asset classes in this respect, our sellsiders move on to discuss FX algo development and the prospects for FX algo functionality that will accommodate multi-asset strategies.
- Balanced Basket
Execution algorithms have to work hard enough when they only have to reference one market. In this issue's Anatomy of an Algo, Nitin Gambhir, CEO at Tethys Technology, takes things to the next level by describing the operation of a multifactor algo used for one security (crude oil) in a futures basket trade where individual execution rates were constrained by an execution deviation limit. Oh, and as if that wasn't enough, the trade was executed on one of the most volatile days in the crude market this year.
Isn’t it time we let the crash-test dummies loose on our technology? Automated Trader’s crack team of futurologists takes a random stroll through the holiday-season e-traffic.
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