Algorithmic trading:

practical aspects

EXANTE Ltd.

exante.com.mt

info@exante.com.mt

Moscow 2011

I. Algorithmic trading

II. Develop the model

III. Launch the strategy

IV. Analyze the results

V. Trends

Algorithmic trading

Automated trading

HFT

Automated trading

Buy-side Sell-side

Stat arbitrage

VWAP Market Making / HFT

Trend

following

Arbitrage

Smart order

routing

Pricing

I. Algorithmic trading

II. Develop the model

III. Launch the strategy

IV. Analyze the results

V. Trends

Data Hypothesis Model Testing

Historical Data

Width

Instruments

Venues

Corp. actions

News

Depth

Past period

Resolution

Order book

Counterparties

Correctness

Splits and divs

Gaps

Timestamps

Validation

Data Hypothesis Model Testing

A priori knowledge

Gut feeling

Empirical Fundamental

Visualization

Data volume

Speed

Math

Иллюстрация с panopticon.com

RTS Index and S&P Index, 2010-10-11

16:40 16:50 17:00 17:10 17:20 17:30 17:40

RTSI SPX

Data Hypothesis Model Testing

Model

Alpha Risks Transaction costs

EDGE ?

Model: math

Prototype

Our experience: R

Domain Libraries Open and free

Slow No realtime Open and free

Data Hypothesis Model Testing

Testing

Data

• Historical data

• Modeling market impact and order flow

• Realtime

Prototype

• R / Python/ Java

• Cluster / cloud

• GPU

Results

• Alpha

• Risks

• Transaction costs

I. Algorithmic trading

II. Develop the model

III. Launch the strategy

IV. Analyze the results

V. Trends

Инфраструктура

Speed

Low-latency

Ultra low-latency

Sub millisecond

Depth

L1

L2

Raw

Coverage

Americas

Europe

Asia

Realtime data

Strategy

NYSE MFG

LSE

Data Orders

JP

Strategy sandbox

Robot 4 Robot 3

Robot 2 Robot 1

Language

High-level (C++, Java, C#, etc)

DSL (Slang, etc)

Visual (diagrams)

Infrastructure

Client

Server

Cloud

Control

Manual

Automatic

GUI

Arbitrage example

GAZPRU (MICEX)

On new tick: ogzd_rub = convert(ogzd, usd_rub) spread = normalize(ogzd_rub/gazpru) changedSpread()

OGZD (LSE)

USD/RUB (FOREX)

LIMIT (LSE)

London Server (Telehouse)

Filled (size)

MARKET (MICEX)

Filled (price)

On change spread: if (spread > threshold) place_limit(OGZD, price, size)

On limit fill: If (limit_is_filled) place_market(GAZPRU, size)

Arbitrage strategy

Parameters: threshold

VWAP example

On new tick: vwap = recalculateVwap(trades) execute_vol = recalculate(average_volume, volume) executeOrder(execute_vol)

MARKET (MICEX)

Moscow Server (MacomNet)

Filled (size)

on market fill: our_vwap = update(price, size) vwap_delta = our_vwap - vwap

VWAP strategy

SBER bid/ask (MICEX)

SBER volume (MICEX)

SBER trades (MICEX)

Parameters: average_volume

I. Algorithmic trading

II. Develop the model

III. Launch the strategy

IV. Analyze the results

V. Trends

Gather results data

Market snapshot Orders

Latency Strategy parameters

Data

Export the results data

Excel R, Matlab

Visualization Model

Export

Compare with the model

Optimize the parameters

Model

Testing

Trading

Results

I. Algorithmic trading

II. Develop the model

III. Launch the strategy

IV. Analyze the results

V. Trends

Adoption CME GLOBEX Vol, % Msgs, %

E-mini S&P 500 Futures 51.66 69.93

EuroFX Futures 69.32 83.41

Eurodollar Futures 51.29 64.46

Crude Oil Futures 35.34 71.24

Foreign Exchange Buy-side, % Sell-side, %

Order Routing 25 92

Time-slice 25 15

Liquidity 42 46

Alpha 92 39

FX Hedging 25 39

Streambase 2011 Special Report on FX

Algorithmic Trading and Market Dynamics July 15, 2010

60

90

0

10

20

30

40

50

60

70

80

90

100 FORTS

Vol, % Msg, %

Estimated by FORTS 09.2011

Dodd-Frank

SEC 15c3-5

MiFID II

Swap Execution Facility.

Eliminate naked access to exchange.

Crossing networks, derivatives, HFT.

Algotrader: a new breed

Technology

Mathematics

Finance

Strategies

ULL DMA

5μs / km

< 100μs / algo

106 msg / sec

HFT

Buy-side or sell-side?

Market making

Liquidity search and aggregation

Stat arb

Multi-asset trading

FX, Eqty, Debt, Derivs

Europe, USA, Asia

Feeds and execution

Fast and reliable data

Technologies

Software Overclocking FPGA

Multi-core GPGPU Cloud x32 x200 x30000

Our experience: cloud

Power Diversity Cost control

Engineering Compliance Latency

Service!

Anatoliy Knyazev

ak@exante.com.mt

Vladimir Maslyakov

vm@exante.com.mt