Building a financial trading system from the wide variety of components available in the market can be daunting. Doing it right requires you to consider multiple functions a typical trading system is required to do, then selecting the best tool for the job.
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.
Individuals, family offices and small trading firms have a wide variety of strategies to consider. These users don't necessarily require a financial trading system with every whiz-bang feature ever invented. In fact, fewer features, but ones that are specific to your trading strategies, typically outperform large, complex systems. This is not just because of the cost -- fewer features reduces "tinkering" and allows the trader to focus on his or her strategy rather than electronic distractions that undermine discipline. That being said, the ability to implement sophisticated if-then rules and contingent orders is critical to keep up with market variations. The ability to create and manage multiple strategies easily is a mandatory feature. Configurable components provide flexibility. Smaller firms and individual traders also appreciate highly transparent rules and rule builder features.
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.
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.
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.
Implementing an Excel-based financial trading system requires defining the trading strategy, importing and managing price-volume data, computing the right position sizes to balance risk and return, reporting, back testing, graphs, tables, watch lists, etc. You can find add-ins or build components for each part of the process. Add-ins are available for market risk, statistics, greeks, valuation and many other fuctions. A quant can build an entire tool chest in Excel with integrations to FinCad, Matlab and similar software.
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.
Individuals, family offices and small trading firms have a wide variety of strategies to consider. These users don't necessarily require a financial trading system with every whiz-bang feature ever invented. In fact, fewer features, but ones that are specific to your trading strategies, typically outperform large, complex systems. This is not just because of the cost -- fewer features reduces "tinkering" and allows the trader to focus on his or her strategy rather than electronic distractions that undermine discipline. That being said, the ability to implement sophisticated if-then rules and contingent orders is critical to keep up with market variations. The ability to create and manage multiple strategies easily is a mandatory feature. Configurable components provide flexibility. Smaller firms and individual traders also appreciate highly transparent rules and rule builder features.
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.
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.
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.
Implementing an Excel-based financial trading system requires defining the trading strategy, importing and managing price-volume data, computing the right position sizes to balance risk and return, reporting, back testing, graphs, tables, watch lists, etc. You can find add-ins or build components for each part of the process. Add-ins are available for market risk, statistics, greeks, valuation and many other fuctions. A quant can build an entire tool chest in Excel with integrations to FinCad, Matlab and similar software.
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:
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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