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?
One of the main challenges when buying or building a financial trading system is the sheer number of choices. Trading software ranges from cheap "every man" applications and shareware to full-blooded enterprise systems designed for the largest banks and hedge funds. So the first question is "where do I fit in the range of size and sophistication?" This helps define the features you need, the money you will spend, and the vendors you will buy from...or build if you like that path.
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 main components or modules in a financial trading system to consider are: trading strategy and analysis, trade execution, market data management, position management, profit and loss analysis, and risk management. Depending on the complexity of your needs, two additional modules to consider would be for accounting and user security access. These latter two are needed for formal corporate environments. Otherwise you can rely on broker statements and PC login security.
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.
For smaller firms, trading execution directly in the market with a financial trading system is the responsibility of your broker. At a bank trading desk, orders are typically routed through the bank's OMS for direct execution or sent to electronic markets and liquidity pools. Excel can be integrated via APIs to send a variety of order types.
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.
As you can see, there are lots of considerations in the trading technology area. Hopefully this helps you put together the best financial trading system for you.
One of the main challenges when buying or building a financial trading system is the sheer number of choices. Trading software ranges from cheap "every man" applications and shareware to full-blooded enterprise systems designed for the largest banks and hedge funds. So the first question is "where do I fit in the range of size and sophistication?" This helps define the features you need, the money you will spend, and the vendors you will buy from...or build if you like that path.
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 main components or modules in a financial trading system to consider are: trading strategy and analysis, trade execution, market data management, position management, profit and loss analysis, and risk management. Depending on the complexity of your needs, two additional modules to consider would be for accounting and user security access. These latter two are needed for formal corporate environments. Otherwise you can rely on broker statements and PC login security.
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.
For smaller firms, trading execution directly in the market with a financial trading system is the responsibility of your broker. At a bank trading desk, orders are typically routed through the bank's OMS for direct execution or sent to electronic markets and liquidity pools. Excel can be integrated via APIs to send a variety of order types.
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.
As you can see, there are lots of considerations in the trading technology area. Hopefully this helps you put together the best financial trading system for you.
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.