Commentary

Tim Quast
Traders Magazine Online News

We're All HFTs Now

In this guest commentary, author Tim Quast looks back at the history of HFT and how the market has evolved to where many firms now fit the definition of high-frequency trader.

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March 1, 2002

A Model of Perfection

By Randy Abernethy

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  • A Model of Perfection

Your quantitative investment process is finally up and running. It has been thoroughly back tested. How do you trade? Do you place your orders manually? Do you stage your orders for electronic and manual execution using an order management system? Or, could you fully integrate your model with the markets?

The answer to this last question is yes, it could be fully integrated through Procedural Market Access, or PMA. That's the process of generating, delivering and executing trades electronically. PMA techniques are typically utilized by quantitative trading firms that use technology to achieve speed to market and access to liquidity. Only the most sophisticated institutions have had the resources to produce end-to-end electronic trading. Now PMA products are more broadly available.

Rules-based trading systems allow quantitative portfolio managers to describe their trading strategy in computer terms, allowing the computer to generate orders automatically. Rules-based systems provide a development shell that offers the technician a programming language, an algorithm toolbox, and access to data and interfaces. Here are some key rules-based PMA players:

The FlexTrade application by FlexTrade Systems Inc., one of the most powerful systems of its kind, is designed to enable high frequency trading strategies in a broker neutral framework. The FlexTrade system is customizable. The application relies on the FIX protocol as its primary mechanism for order delivery.

A new entry, PortWare trading software offers a Java-based modeling environment allowing traders to develop sophisticated trading strategies. Like most broker independent trading tools, PortWare relies on the generic FIX protocol for market connectivity.

The Quantex offering from ITG Inc. provides a comprehensive set of modeling and trade execution tools at the high end of the market. Offerings from ITG include post trade analysis, portfolio risk optimization, execution servers (VWAP and others), an integrated crossing network (POSIT), FIX support and various OMS integration solutions.

TradeStation 6 is an integrated front-to-back solution designed for entry to advanced level users. The program features the EasyLanguage vernacular, designed to simplify the model expression process. The TradeStation product combines back testing capabilities with automated trading through the TradeStation Securities brokerage. Rules-based trading systems offer several advantages over manual trading solutions. It is the trading interface that enables seamless access to the markets. The old standard FIX defines a message format for orders and other types of trade information along with a recoverable session protocol. The FIX standard has enabled the commercial existence of stand-alone, rules-based trading systems among other products.

The Web Services standard is the new and popular way to provide a unifying programming model across Internet connected systems. Leveraging standards from the Web such as XML and HTTP, the Web Services standard seeks to provide a language-independent way for vendors to offer services directly to programmers over the Internet. Although the Web Services standard is in its infancy, some brokers are providing trading access via the protocol.