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 first challenge is laying out what you want to achieve on the trading side versus position-keeping, accounting and trade processing. There are a plethora of software platforms available from those less than $200 to massive systems used by global financial institutions. At the beginning you should ask "what do we really need versus want in terms of trader tools?" The answer will help guide the decision-making process as you look at each component of the trader's tool chest.
So, let's say you are a small firm of 10 traders with a range of different strategies you implement every day in the markets. This size firm doesn't merit a massive financial trading system designed for a big investment bank. But the firm's traders also are not small fry -- they trade millions in shares and commodity futures on a daily basis. What they need is something that is highly configurable, modular, easy to understand, easy to change, and does the trick.
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.
Microsoft Excel is one of the most-used applications for this purpose. Programming trading strategies directly into Excel with VBA code or formulas is achievable with a limited amount of training. A typical trader can learn to do this fairly easily. User controls such as buttons, dropdowns, data entry fields, charts, etc. can be added in a way that mimics the visuals and behavior of more expensive software platforms. You can automatically import market data (prices, volume, volatility...) for use with technical indicators. Basic if-then rules, with statements and loops can be used to create elaborate or simple strategies. Excel's statistical calculations are a great add-on. Sophisticated analysis can be done before and after the trade. These are why Excel is so widely used by Tier 1 traders, despite the fact they have the most elaborate trading systems available to them.
Trade execution in a financial trading system is best left to dedicated broker systems, either retail or prime broker. In the case of a corporate treasury, this may be a sell-side investment bank's online system, or even direct order entry into electronic markets, ECNs, dark pools and other liquidity centers. Typically, this is accomplished by dedicated order management systems (OMS) with accessible APIs and a wide range of order types. There is really no point trying to use anything else.
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.
If you're planning to implement a financial trading system, Excel is likely to become a major part of your trading operation. Hopefully, these insights will help make the right decisions for your trading success.
The first challenge is laying out what you want to achieve on the trading side versus position-keeping, accounting and trade processing. There are a plethora of software platforms available from those less than $200 to massive systems used by global financial institutions. At the beginning you should ask "what do we really need versus want in terms of trader tools?" The answer will help guide the decision-making process as you look at each component of the trader's tool chest.
So, let's say you are a small firm of 10 traders with a range of different strategies you implement every day in the markets. This size firm doesn't merit a massive financial trading system designed for a big investment bank. But the firm's traders also are not small fry -- they trade millions in shares and commodity futures on a daily basis. What they need is something that is highly configurable, modular, easy to understand, easy to change, and does the trick.
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.
Microsoft Excel is one of the most-used applications for this purpose. Programming trading strategies directly into Excel with VBA code or formulas is achievable with a limited amount of training. A typical trader can learn to do this fairly easily. User controls such as buttons, dropdowns, data entry fields, charts, etc. can be added in a way that mimics the visuals and behavior of more expensive software platforms. You can automatically import market data (prices, volume, volatility...) for use with technical indicators. Basic if-then rules, with statements and loops can be used to create elaborate or simple strategies. Excel's statistical calculations are a great add-on. Sophisticated analysis can be done before and after the trade. These are why Excel is so widely used by Tier 1 traders, despite the fact they have the most elaborate trading systems available to them.
Trade execution in a financial trading system is best left to dedicated broker systems, either retail or prime broker. In the case of a corporate treasury, this may be a sell-side investment bank's online system, or even direct order entry into electronic markets, ECNs, dark pools and other liquidity centers. Typically, this is accomplished by dedicated order management systems (OMS) with accessible APIs and a wide range of order types. There is really no point trying to use anything else.
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.
If you're planning to implement a financial trading system, Excel is likely to become a major part of your trading operation. Hopefully, these insights will help make the right decisions for your trading success.
About the Author:
Implementing a financial trading system may involve Excel models for several components. Find out how to implement Excel for trading here.
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