Automated Trader Magazine Issue 08 Q1 2008
Automated Trader starts 2008 with an optimistic story of expansion and growth. This might seem somewhat at odds with very real concerns about reduced liquidity in the financial markets and lower incomes and spending in the wider economy. But this first issue of 2008, which also marks our second anniversary (see page 54 for Managing Director Andy Webb’s review of upcoming developments at AT), reflects the sheer diversity and dynamism of automated and algorithmic trading, and the ways in which it is bringing greater efficiency to the financial markets. We are still some distance from, and may never reach, a state of equilibrium in which humans and machines are accorded the tasks in the financial markets to which they’re best suited. This issue nevertheless pursues that path across asset classes, geographies and technologies.
Though automated and algorithmic trading originated in and now increasingly dominates trading activity in exchange-traded instruments, its application in foreign exchange – an asset class singularly lacking in formalised exchange structures – has been a fascinating one. In ‘Buy Side Flocks to FX’, we look at the different automated trading models and execution algorithms that are proving most effective in an increasingly competitive market (page 50). Meanwhile, Dr Usman Malik of P.E. Lynch LLP considers the geographic expansion of algorithmic trading in an article which emphasises the importance of adapting to specific market conditions, in this case Asian, to optimise trading performance (page 20). The globalisation of algorithmic and automated trading is a theme also taken up by Gary King, CEO of the Dubai Mercantile Exchange, in this issue’s leader, which reviews developments in the Middle East, one of the most dynamic and fastchanging trading sectors in the world (page 12).
An innovation for this issue, designed to fulfill reader requests for practical ‘how to’ content, is Anatomy of an Algo (page 47), a new regular column in which we explain how different types of execution algorithm conduct common trades across various market conditions. At the other end of the spectrum, David Aronson explores how advanced modelling techniques, such as kernel regression, can be utilised in the creation of performance boosting models (page 16). This issue’s AT interview, with BlackCat Trading Technologies, provides a link between these articles by exploring the path from casual interest in rules-based trading to designing and utilising a sophisticated trading platform. While the short-term forecast may be uncertain, the pace and breadth of innovation in algorithmic and automated trading is reason enough for an optimistic long-term outlook.
Chris Hall - Editor Issue 08
- The Middle East: A Region Rich in OpportunityGary King, Chief Executive Officer, Dubai Mercantile Exchange, explains why trading firms should look beyond Asia for new investment opportunities to a region whose financial markets are primed for an expansion in algorithmic and automated trading.
- The Role of Advanced Models in Performance BoostingIn the second part of a two-part article, David Aronson, President of Hood River Research, examines the modelling techniques used in arriving at a valuable predictor set for boosting ‘raw’ trading model performance.
- Adapting Algorithms to Realities of Asian MarketsIf execution algorithms are to be adopted widely in the Asian markets, both providers and users must be aware of the unique characteristics of trading in the region, says Dr Usman Malik of P. E. Lynch LLP.
- New Horizons for Complex Event ProcessingDaniel Chait, Managing Director, Lab49, asserts that CEP has a wide range of applications beyond algo/auto trading.
- Do Your Testing Methods Deliver?Much of the underperformance of messaging systems can be attributed to inadequate measuring tools and testing conditions, according to Barry Thompson, Founder and CTO, and Dave Lauer, Senior Systems Engineer, Tervela.
- All the News that's Fit to TradeNews has been moving financial markets since before Julius Reuter released his first pigeon. Chris Hall asks whether machine-readable news will give traders an edge.
- The Liquidity SeekerChris McConville, Executive Director, Equities at UBS Investment Bank, narrates the typical use of a liquidity-seeking algorithm to trade a fictitious investment trust.
- Buy Side Flocks to FXAuto and algo trading techniques are being deployed by a wide range of buy-side firms in the increasingly crowded, but not always transparent, waters of the FX market. Chris Hall reports.
- This Issue's Round-up of AT's Proprietary Alphability MetricsTrend and Reversal Alphability data for stock index and bond futures and top/bottom five Dow stocks.
- Rising to the Cross-Asset ChallengeHow are automated traders exploiting cross- and multi-asset trading opportunities and how are suppliers supporting increased demand? These topics and more were discussed by our panel at the FIA’s Expo 2007, Chicago.
- Hard and Fast?Hardware and networking infrastructures should be the building blocks of any market participant’s algorithmic and automated trading capabilities. AT asks leading providers to share their views on the latest techniques and technologies.
- A Singular Vision
Its recent merger with the CBOT saw CME Group expand further the range of asset classes available on its Globex platform. Deputy CIO Kevin Kometer looks at the diverse challenges ahead.
- Cream RisingBlackCat Trading Technologies’ Matthew Breakwell and John Reeve explain their distinctive approach to building a quantitative trading platform and outline their plans for exploiting it.
- The Blame GameWhen things go wrong, the reflex reaction is to apportion blame. When things go wrong in the financial markets, who will the regulators be pointing their fingers at?
- Finding the Correct Path Through Market TurbulenceRecent months have seen financial markets experience more turbulence than perhaps ever before. Market corrections, war in the Middle East, sub-prime crisis, bulls and bears not sure which they are, and more recently the return of the 'big style' rogue trader have caused more volatility, I would suggest, than most have ever experienced.
- Proximity Hosting: Plug'n'Trade or Pay'n'Wait?Proximity and trading application hosting have been some of the fastest growing areas in the evolution of automated and algorithmic trading. Mark Thornberry, Managing Director at RTS Realtime Systems, London, discusses some of the main considerations for traders evaluating its various flavours.