TRADING STRATEGIES Urs Rutschmann, COO Tbricks

Transcription

1 TRADING STRATEGIES 2011 Urs Rutschmann, COO Tbricks

2 SEMANTIC CHALLENGE High Frequency Trading Low latency trading Algorithmic trading Strategy trading Systematic trading Speed Arbitrage Statistical Arbitrage Risk Arbitrage Pairs trading Market Scanning Correlation trading Delta one trading ETF trading Market making Liquidity providing Market reflection Volatility trading Quantitative trading Event based trading Directional trading Algorithmic execution SOR,VWAP,TWAP...

3 WHAT IS LOW LATENCY - HIGH FREQUENCY TRADING? Fast and frequent trading Newest generation of market making Arbitrage/Statistical Arbitrage Chasing pricing inefficiencies Quantitate trading Following trends and reacting on price patterns Market making Providing liquidity, quoting Responsible low latency - high frequency trading is a contributor for liquid and fair priced markets and serving the entire investment community

4 LOW LATENCY EVOLUTION In 1848 Paul Julius Reuter started to use carrier pigeons for the fast transport of exchange market data between Berlin and Paris 25 years ago real-time meant online order entry, not using the telephone The average human reaction time is 215 milliseconds ( 5 years ago, to trigger an order in a trading system with an internal latency of 1 millisecond was still worth a press release Now we have reached the microsecond age moving towards nanoseconds Low latency is a relative term and means different things at different times

5 WHO NEEDS LOW LATENCY Everybody? In principle yes, but value largely differs depending on type of business and trading strategies How can a trading organization be different and stay competitive?

6 BE DIFFERENT- CHECK LIST Business idea Resources Selection of trading strategies Selection of execution venues/ markets Trading software Trading infrastructure Operations, clearing

7 TRADING STRATEGIES Select trading strategies in line with ideas, research, experience, resources and trading markets Examples of Strategies with diverging latency requirements Speed Arbitrage Market making / quoting Statistical Arbitrage/Pairs Quantitative trading Long term strategies Critical Critical Important Valuable Not important

8 TRADING STRATEGIES Building a trading strategy: Idea, research, define markets, define latency requirements, build business logic, code strategy, test, set pre-trade limits, optimize, full production, scale-up Think and measure cash per transaction when building high frequency strategies and not only ratios, spreads etc.

9 PAIRS TRADING Requires comprehensive functionality including multi currency support, adjustable levels of risk tolerance, hedge management with exception handling, performance measurements/analysis Trading in most liquid shares is very competitive and requires native, fast and co-located technology Good learning ground before going into more sophisticated statistical arbitrage strategies

10 STAT ARB STRATEGIES Searching pricing inefficiencies and arbitrage potential Single instruments versus baskets, baskets versus baskets, intra-, inter-market, different time zones, multiple asset classes etc. Speed is less of a requirement if the strategy has a higher level of sophistication

11 QUANTITATIVE STRATEGIES Trade based on historical data, short or longterm Find trading signals based on converging/diverging moving averages, relative strength, bands etc. Find trading patters, create reversal or continuation signals Define trend-lines and create trading signals based on cross overs

12 ETF TRADING Roles Market maker, arbitrage trader, sales trader Sales trader needs computer assisted manual trading environment Real-time pricing of basket, based on instruments, for OTC quoting Pre-arranged push bottom hedge, if sale is confirmed

13 TRADING VENUES Choose mix of trading venues amongst exchanges, MTFs/ ECNs, sponsored access, brokers, execution platforms (dark/ lit pools) in alignment with trading strategies and resources Consider FX venue for multi currency strategies Observe per trading venue: Traded products and liquidity, market share, transparency of order book, execution functionality, location and cost of execution

14 MARKET DATA Fast market data is key Raw market data at co-lo is fastest! If not a member/sponsored access a fast commercial market data feed is essential, some providers are faster, some offer a broader market/instrument coverage Normalized market data from commercial providers can be a good alternative in distant locations due to optimized transport and networking, despite of an additional format conversion

15 LOW LATENCY APPROACH Location, location, location: You can t beat the speed of light! Choose a fast trading system and fast hardware Choose co-lo or hosting centre Choose fast network and fast networking equipment, cards, switches etc. Understand the end-to-end chain of components that add latency To measure is to know: Lowest latency is an ongoing process based on continued monitoring and incremental improvements

16 MULTI LOCATION STRATEGIES Depending on legs and steps of the trading strategy, the ideal location of the strategy execution server diverges Normal approach, strategy execution server is where you bait or execute your first leg/order If a trading strategy listens to market data from two distant locations and randomly executes on these two markets, the ideal location is in between! Tbricks has written a white-paper for a more scientific approach

17 TRADING SYSTEM Is at the heart of low latency trading Must be very fast! Strategy development framework in C++ Native or FIX connectivity Build for multi site trading Scalability! Flexible, allowing fast release independent changes Offer very fast pre-trade risk capabilities Low latency position keeping and risk management Thin optimized client. No fat client or Citrix.

18 WHO IS TBRICKS? Founded and run by senior managers from Orc, SunGard Front Arena and actant, who are also key investors First client in production 2008 Offices in Stockholm, St. Petersburg, London, Zug and New York Our clients are proprietary trading desks at banks, trading firms, hedge funds and other investment firms

19 WHY TBRICKS? Tbricks is a comprehensive low latency trading system Offers native or FIX based execution, selection of market data providers Complete coverage of native Scandinavian markets Connection to brokers and execution platforms Library of ready made trading strategies Strategy and plug-in development environment in C++ Calculations engine, pricing, risk management, pre-trade risk Thin but functionally rich client, ideal for multi location deployment Full service, training and client management

20 Tbricks is the newest generation trading system offering comprehensive functionality for any listed products Designed for today s distributed low latency trading Offers lowest latency with unmatched flexibility and scalability ETF trading launched in Q Tbricks low latency options quoting with pre-calculations etc. will be launched later this year. Tbricks speedcore TM will be launched this summer!

21 THANK YOU AND HAVE A GREAT DAY!