Financial trading technology
Technology developments in financial trading are taking place with the speed of light. We have now got to the point that the computer has taken over some of the basic tasks that used to belong to the trader. In fact, the computer’s role goes beyond the basic tasks and is becoming more and more dominant. Financial industry’s participants have massively entered the era of automated or algorithmic trading.
Algorithmic trading has opened doors to new opportunities for investment professionals. In fact it has re-shaped the trading process. Today, high frequency trading firms account for more than 70% of all US and UK equity trading. Algo trading is also finding its way to the Foreign exchange, Futures, Options and Bond markets, with a significant and growing percentage of orders initiated by computer models.
The state of today’s technology allows investment firms to continuously discover new trading opportunities that were recently inconceivable. An algo trading architecture consist of many elements which individually contribute to the computerised trading process. Low latency price feeds and elementised news feeds stream into Complex Event Processing (CEP) systems which generate buy and sell signals which are immediately divided into several smaller trades in order to manage market impact and risk. Via Direct Market Access (DMA) components, the orders are dropped on the exchange and/or Multilateral Trading Facility (MTF) for execution.
Econometrists and quantitative analysts work continuously on re-engineering and improving the models or algorithms by back-testing large volumes of historical tick data, provided by tick capture systems. Latency monitoring systems allow the firm to measure the latency of the market data it receives, as well as of the orders it sends off.
Buy-side and sell-side benefit from the opportunities that today’s trading technologies offer, however their technology architectures including the individual elements differ significantly. Following the recent financial-economic turmoil, we predict that investments in trading technology by market participants will be driven by risk and regulatory pressures.
