Algorithmic Trading

Electronic trading based on human decisions

Electronic trading systems are in use for over a century. However, the decision making part is left mostly to the knowledge and experience of traders using them. In that sense, most of the electronic trading systems are manual in nature, where human users manually enter the instructions for trading and decide what to sell or buy, at what rate, when, where and in what quantity.

In the current era of Direct Market Access and global connectivity, the market data arrives at tremendous rates. Message exchange rates have reached to thousands of messages per second in a typical business scenario and the market indicators refresh at an interval of a few milliseconds or even less. During short term opportunities, it is difficult to read, understand and manually place orders by capturing the right moment. The splitting of a bulk order into a number of small orders is essential to avoid market impact. Electronic trading systems based on manual trading often fail on this front.

The rise of Algorithmic Trading

Due to high-speed messaging and simultaneous trading on different exchanges, the market trend has shifted to the automation of trade life cycle with a minimal human interference. The trading systems are now expected to decide the complex trading factors like price, order type, quantity and time. This requirement has resulted into the rise to Algorithmic Trading, the new trend in market. In the electronic markets, Algorithmic Trading is also referred to as robo trading, algo trading, black-box trading and rule based trading. Algorithmic Trading is evolving with progress in technology and mathematical techniques and it is going to dominate the trading technology for years to come.

An Algorithmic Trading system refers to a rule based automated trading system which continuously monitors the market data, analyses it and decides the price, order type, quantity, time and the most appropriate marketplace to sell or buy the products. Algorithmic Trading is essential for statistical arbitrageurs and high frequency traders, who continuously look for specific events and market conditions lasting for very short durations and exploit them for making profits. Algorithmic Trading helps large financial institutions to trade in high volumes with a minimal or no market impact.

Algorithmic Trading has some key benefits:

• Overcoming the velocity and volume trading barriers: When market indicators refresh at millisecond intervals, only the trading algorithms implemented through appropriate software can execute bulk orders in steps, with speed and with a minimum effect on the market mood.
• Overcoming incorrect human decisions: Despite the support of elaborate analysis and charting tools, decisions of human traders can differ according to their moods and emotions and can result into a failure. Algorithmic Trading systems are programmed to apply situation dependent trading strategies based on a set of well defined rules and market parameters. These rules originate from the human experience and knowledge only, but Algorithmic Trading can implement them without errors.
• Higher profits levels with lower risks: Algorithmic Trading systems help in automating the trading for better profit margins at any given point of time. They reduce financial risks and transition costs through the correct formulation and routing of orders.
• Relaxed trading: The current trading process binds traders continuously to multiple trading and market data screens. Algorithmic Trading allow traders to work in a relaxed environment. The trading algorithms continuously monitor and analyze the market data and decide about the buy and sell actions in a systematic and well defined manner. They also generate the trade and market analysis reports. Traders can get sufficient time to have a look at the generated reports and decide their strategies.

How Algorithmic Trading works

In very simple words, Algorithmic Trading is about the automation of the “Sense-Analyze-Decide-Execute” process for maximizing the profitability.
Sensing refers to sensing the market data from multiple destinations. Analyzing includes statistical analysis for arbitrage and other opportunities based on different market patterns. A market pattern represents a set of historical data points and the behavior of the market at that time. Deciding refers to the use of an appropriate trading strategy for finalizing the order type, price, quantity and the marketplace for placing order. Executing refers to implementing the decision.

The success of Algorithmic Trading systems depends on their speed, intelligence in recognition of dynamic market pattern, correctness of the set of rules for applying trading strategies and the supporting execution management mechanism.

Our approach to Algorithmic Trading

Client centered

Trading firms and financial institutions have a valuable knowledgebase of ideas and trading strategies from their experience. We help them to convert their knowledgebase into a reality in the form of a fully automated expert Algorithmic Trading system. We add value in terms of efficiency, speed, complex mathematical techniques for system optimization, streamlined trade workflow and direct market access for ultra low latencies.

Total solution

Trading algorithms cover multiple aspects like market pattern definitions, pattern recognition mechanism, client defined system behavior for different patterns and a sophisticated console for the manual control. However, a total Algorithmic Trading solution is not just about writing efficient algorithms. It equally addresses to the streamlined integration of the Algorithmic Trading application with the supporting trading infrastructure.

The trading infrastructure includes direct connectivity with global exchanges, market data access and distribution, real-time market data analysis and an efficient execution management platform for routing orders. We follow a flexible and modular approach in our Algorithmic Trading solutions and select components just as the client needs them. We have a comprehensive list of ready-to-use application components for global connectivity management, order routing, execution management, market data distribution, analysis and charting. The availability of such reliable and well-tested components helps in streamlining the trading workflow and significantly reduces the system integration and deployment period. With an inherent high customizability for implementing new technology trends, our Algorithmic Trading solutions qualify in every aspect to serve as intelligent legacy systems for years to come.

Features of our Algorithmic Trading solutions

Our Algorithmic Trading system solutions aim to provide the following features:

• Leveraging artificial intelligence techniques like neural networks, fuzzy logic, neuro-fuzzy modeling for robustness
• Customizability for implementing client specified logic
• Optimization of huge search spaces for increased throughput
• Continuous monitoring of profit and loss, risk and compliance
• User console for the complete control
• High volume trading with a minimal or no market impact
• Easy integration with other applications like order management systems, execution management systems, market data distribution platform, real-time database management systems, analysis tools etc.
• Scalability for growing business and analysis needs

Why partner with FFS

Trading algorithms are rule based systems designed with an emphasis on event-based processing. Their smartness lies in the people who make those rules based on their trading experience and knowledge. We transform the ideas of our clients into a reality. Our experience and expertise in the diverse trading and technological domains are our key assets for writing smart algorithms.

We have several ready-to-use trading infrastructure components for reducing the system integration and deployment period. We also provide a good collection of test cases and historical market data for the pattern recognition, market simulation and benchmarking needs.

These factors, combined with our R&D support make us a strong partner for developing fast, high-performance, robust and efficient Algorithmic Trading solutions for our clients.