July 2019CIOAPPLICATIONS.COM8IN MY Viewlectronic trading business is highly competitive. In my view, execution performance, speed and quality of customization, access to liquidity and system stability are differentiators of a competitive low-touch offering.TechnologyOver the last 20 years, the electronic trading technology landscape has experienced dramatic changes. Innovations in hardware, networking, and software have had an immense impact on the current state of art. To truly stand out from the rest of the competition, an electronic trading product must be performant from latency and throughput point of view and resilient to failure without compromising capabilities and quality of execution. There is a prevalence of cutting-edge open-source libraries for almost everything you need to build. Tremendous amount of attention should be paid to reliability and failover. A comprehensive suite of automated testing and a sophisticated simulation environment is essential to validate and guarantee the quality of your product.Buy-sides clearly demand better performance and predictability of execution results, without sacrificing the ability to source liquidity, transparency and control of their executions. Connecting to all sources of liquidities, selecting venues to route algorithmic child orders based on advanced analytics, regular review of venues selection, and transparency of order routing logic are all integral parts of best execution and drivers of quality execution performance.Quantitative ResearchAdvanced quantitative models are the corner stone of a competitive electronic trading offering. It is the "brain", which drives the algorithmic behavior. Taking into account both historical and real-time market data, limit order placement model determines when, where and how much quantity at any point in time throughout order lifecycle, venue ranking model makes informed stock-specific routing decisions, and volume profile model dynamically tilts towards either front-loaded or back-loaded.You should choose the most suitable models for every situation you encounter. We treat our order placement problem as a Markov Decision Process solved by dynamic programming technique. It provides a mathematical framework that can naturally accommodate various sub-models to address different aspects of security trading. One of the most important aspects is the market microstructure, of which the spread dynamics, fill probability and adverse selection are all modeled with thorough statistical analysis. Short-term signals can also be easily incorporated into the framework.At every state, an optimal decision among crossing spread, improving best quote, joining the best quote, and staying away from market will be selected in order to minimize trading cost.Five Pillars of Modern Electronic TradingKathryn ZhaoKATHRYN ZHAO, GLOBAL HEAD OF ELECTRONIC TRADING, CANTOR FITZGERALDE
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