Futures Embrace Algorithmic Trading
Algorithmic trading is gaining acceptance in the futures markets, with trading system providers and futures commission merchants getting into the mix.
“Traditionally, the sellside would take their equity algos and convert them to work with futures or other derivatives,” said Yuriy Shterk, head of derivatives product management at Fidessa Americas.
“This had a number of challenges. Futures markets are global in nature and trade 24 hours a day, different exchanges have different rules, and because of that they end up with algos that are specific to one market only. It is challenging to create an algo that will work in Chicago and Sydney and produce the same results. That’s one of the main reasons Fidessa and other providers are targeting algos in futures.”
FCMs are targeting the futures algo space as well, with offerings for everything from execution to clearing.
State Street Global Exchange has expanded its FCM platform to include futures execution, so the platform now incorporates execution, clearing, collateral management, valuation and risk and analytics for OTC and futures.
“With this expansion into futures execution, we’re focused on giving our clients better control of their transactions,” said Martine Bond, head of trading and clearing at State Street Global Exchange.
“As a custodian, we can remain un-conflicted and offer the size, speed and savings our clients need to stay ahead of market opportunities. We’re continuing to build our teams with fresh talent and extensive product knowledge to offer the most comprehensive global service for our clients to achieve superior executions.”
Over the last five years, Fidessa has invested significant effort in developing algos. “Initially, our approach was similar to what banks had been doing, which was taking the equities model and tweaking it for futures,’ said Shterk. “We realized quickly that this approach would not work. All of our algos that are requested by our customers are now written from the ground up specifically for the futures market.”
Shterk continued, “Even five years ago you had a VWAP and TWAP, but they were not specialized for every asset class (for example – Treasuries); it was probably an afterthought from the equities model that had been implemented previously. “Whereas now, you’re beginning to see algos, including those provided by Fidessa, that are specifically targeting various asset classes in ETD – Treasuries, metals, commodities, etc., and producing consistent results across all the different asset classes and exchanges.
In a report that surveyed nearly 200 asset managers and examined their confidence and investment levels in data and analytics, State Street found that over the next three years, 81 percent of asset managers plan to increase investment in order management and execution systems and 64 percent plan to increase investment in electronic trading platforms. However, despite this increase in investment, only 19 percent have high confidence in their ability to optimize electronic trading strategies.
“Powerful tools and capabilities that extract insights and value from a growing volume of investment data will increasingly determine success,” said Jeff Conway, executive vice president and head of State Street Global Exchange. “Our clients need actionable insights and the right tools to make faster and more informed investment decisions. The expansion of our futures capabilities demonstrates our commitment to help our clients access liquidity globally and see ideas through from concept to return.”
Agency broker moves beyond execution to offer a broader suite of services.
Algorithms have become more prevalent in the spot FX market.
QB’s Algo Suite for futures market trade execution is also being co-located to HKEX.
Breaking data silos is key to deploying automation beyond 'nuisance' orders.
They can be used on quantum hardware expected to be available in 5 to 10 years.