Are you considering how to implement a financial trading system for yourself or your firm? There are a tremendous number of places to start, but how do you sort it all out? Most importantly, what are the key considerations to ensure you do it right and end up with a solid system that doesn't waste lots of time and money?
One of the main challenges when buying or building a financial trading system is the sheer number of choices. Trading software ranges from cheap "every man" applications and shareware to full-blooded enterprise systems designed for the largest banks and hedge funds. So the first question is "where do I fit in the range of size and sophistication?" This helps define the features you need, the money you will spend, and the vendors you will buy from...or build if you like that path.
A smaller firm of 10 traders implementing different strategies doesn't require an elaborate financial trading system designed for a big i-bank. However, your traders are probably sophisticated enough to need real feature -- trading millions in stocks, futures and forex on a daily basis requires the ability to create and manage multiple strategies easily. A firm this size needs something configurable, componentized, transparent and flexible.
The main components or modules in a financial trading system to consider are: trading strategy and analysis, trade execution, market data management, position management, profit and loss analysis, and risk management. Depending on the complexity of your needs, two additional modules to consider would be for accounting and user security access. These latter two are needed for formal corporate environments. Otherwise you can rely on broker statements and PC login security.
From a trading strategy and analysis standpoint, Microsoft Excel tends to be one of the top 2 or 3 applications. You can easily program trading strategies directly in Excel with formulas, VBA, and manual user controls such as dropdowns, data entry cells, and macro buttons. A trader can quickly pull in market data (prices, volume, PE ratios, etc.) and combine it with technical and fundamental indicators with simple if-then statements and Excel's native calculation engine. Elaborate pre- and post-trade analysis can be done along with charting and trend analysis in Excel. That's why it's so widely used by Wall Street and City of London traders who have the best desktop trading systems in the world at their disposal.
Trade execution in a financial trading system is best left to dedicated broker systems, either retail or prime broker. In the case of a corporate treasury, this may be a sell-side investment bank's online system, or even direct order entry into electronic markets, ECNs, dark pools and other liquidity centers. Typically, this is accomplished by dedicated order management systems (OMS) with accessible APIs and a wide range of order types. There is really no point trying to use anything else.
Market data management, position management, profit and loss analysis, and risk management are separate specialty areas where you can buy different components and integrate them, or buy a complete middle or back office system to handle. Market data management requires specialized infrastructure to handle large volumes and massive speed requirements. Positions, P&L, risk, and accounting all rely on complex computations and are best handled together.
As you can see, there are lots of considerations in the trading technology area. Hopefully this helps you put together the best financial trading system for you.
One of the main challenges when buying or building a financial trading system is the sheer number of choices. Trading software ranges from cheap "every man" applications and shareware to full-blooded enterprise systems designed for the largest banks and hedge funds. So the first question is "where do I fit in the range of size and sophistication?" This helps define the features you need, the money you will spend, and the vendors you will buy from...or build if you like that path.
A smaller firm of 10 traders implementing different strategies doesn't require an elaborate financial trading system designed for a big i-bank. However, your traders are probably sophisticated enough to need real feature -- trading millions in stocks, futures and forex on a daily basis requires the ability to create and manage multiple strategies easily. A firm this size needs something configurable, componentized, transparent and flexible.
The main components or modules in a financial trading system to consider are: trading strategy and analysis, trade execution, market data management, position management, profit and loss analysis, and risk management. Depending on the complexity of your needs, two additional modules to consider would be for accounting and user security access. These latter two are needed for formal corporate environments. Otherwise you can rely on broker statements and PC login security.
From a trading strategy and analysis standpoint, Microsoft Excel tends to be one of the top 2 or 3 applications. You can easily program trading strategies directly in Excel with formulas, VBA, and manual user controls such as dropdowns, data entry cells, and macro buttons. A trader can quickly pull in market data (prices, volume, PE ratios, etc.) and combine it with technical and fundamental indicators with simple if-then statements and Excel's native calculation engine. Elaborate pre- and post-trade analysis can be done along with charting and trend analysis in Excel. That's why it's so widely used by Wall Street and City of London traders who have the best desktop trading systems in the world at their disposal.
Trade execution in a financial trading system is best left to dedicated broker systems, either retail or prime broker. In the case of a corporate treasury, this may be a sell-side investment bank's online system, or even direct order entry into electronic markets, ECNs, dark pools and other liquidity centers. Typically, this is accomplished by dedicated order management systems (OMS) with accessible APIs and a wide range of order types. There is really no point trying to use anything else.
Market data management, position management, profit and loss analysis, and risk management are separate specialty areas where you can buy different components and integrate them, or buy a complete middle or back office system to handle. Market data management requires specialized infrastructure to handle large volumes and massive speed requirements. Positions, P&L, risk, and accounting all rely on complex computations and are best handled together.
As you can see, there are lots of considerations in the trading technology area. Hopefully this helps you put together the best financial trading system for you.
About the Author:
Implementing a financial trading system may involve Excel models for several components. Find out how to implement Excel for trading here.