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?
The sheer number of choices is the first challenge when buying or building a financial trading system. Software varies greatly from cheap applications under $100 to multi-million-dollar enterprise systems used by Tier 1 banks and hedge funds. Ask yourself "where do my needs fit in terms of trading volume and strategies?" This helps decide on the features you really need, what it will cost you, and where you will buy. You can also decide to build your own system if that makes sense.
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 financial trading system components to consider are the strategy creator, code, blotter, data manager, reporting, order management and back test tool. Other areas to consider are risk management and interfaces to your risk, accounting and back office trade processing systems. These are often provided by dedicated software platforms or SaaS technology services. Your execution broker comes into play here, and perhaps a third party service provider for things like end of day fund accounting and valuations.
Excel software is one of the most popular solutions for a financial trading system. Excel allows traders to program simple or elaborate strategies with formulas and VBA. It takes some time to learn the skills, but learning is incremental and the resources are essentially free. Excel actually has a full software coding module with the ability to add subroutines, integrate other code into the VBA, and add User controls such as buttons, charts, lists and dropdowns. This allows you to recreate the functionality of very expensive software platforms at a fraction of the cost. Prices and fundamental information can be automatically imported via DDE link. Technical indicator packages are available or can be hand-coded. There are no limits to the trading strategies that can be implemented in Excel. Pre- and post-trade limits, market risk, sensitivities and other analytics can be added.
Small trading shops and invidual traders can execute trades directly in the market by integrating with your broker's execution API. If your firm has an OMS with an API, trade signals originated in Excel can be routed through the OMS and executed at different prime brokers or liquidity centers. Different order types, VWAP and contingent orders can be implemented to ensure best execution.
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.
These are a few of the considerations when planning a financial trading system build or buy.
The sheer number of choices is the first challenge when buying or building a financial trading system. Software varies greatly from cheap applications under $100 to multi-million-dollar enterprise systems used by Tier 1 banks and hedge funds. Ask yourself "where do my needs fit in terms of trading volume and strategies?" This helps decide on the features you really need, what it will cost you, and where you will buy. You can also decide to build your own system if that makes sense.
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 financial trading system components to consider are the strategy creator, code, blotter, data manager, reporting, order management and back test tool. Other areas to consider are risk management and interfaces to your risk, accounting and back office trade processing systems. These are often provided by dedicated software platforms or SaaS technology services. Your execution broker comes into play here, and perhaps a third party service provider for things like end of day fund accounting and valuations.
Excel software is one of the most popular solutions for a financial trading system. Excel allows traders to program simple or elaborate strategies with formulas and VBA. It takes some time to learn the skills, but learning is incremental and the resources are essentially free. Excel actually has a full software coding module with the ability to add subroutines, integrate other code into the VBA, and add User controls such as buttons, charts, lists and dropdowns. This allows you to recreate the functionality of very expensive software platforms at a fraction of the cost. Prices and fundamental information can be automatically imported via DDE link. Technical indicator packages are available or can be hand-coded. There are no limits to the trading strategies that can be implemented in Excel. Pre- and post-trade limits, market risk, sensitivities and other analytics can be added.
Small trading shops and invidual traders can execute trades directly in the market by integrating with your broker's execution API. If your firm has an OMS with an API, trade signals originated in Excel can be routed through the OMS and executed at different prime brokers or liquidity centers. Different order types, VWAP and contingent orders can be implemented to ensure best execution.
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.
These are a few of the considerations when planning a financial trading system build or buy.
About the Author:
A top quality financial trading system uses special tool kits and components designed for the purpose. Learn more about these components and how to implement them in Excel at ExcelTradingModels.
