Trade Talk Blog

The official blog of Trading Technologies, your source for professional futures trading software.

It is a great honor for Trading Technologies’ X_TRADER to be named “Best Buy-Side Commodities Trading Platform” in this year’s Buy-Side Technology Awards. The award, which recognizes “the leading technologies and vendors in their area of expertise, through an auditable and transparent methodology underpinned by the input and experience of six judges,” was announced at the sixth annual Buy-Side Technology Awards in London on Friday.

The 2012 award is a significant accolade for TT in a period of increased agitation and uncertainty for our industry. That our platform was chosen from a large field of worthy competitors is deeply satisfying to all of us at TT.

At the core of our philosophy is the simple idea that everything we do, from providing exchange connectivity and hosting services to designing world-class algorithmic design tools, centers on the end user. Although our system addresses the needs of many constituents, including regulators, exchange operators and broker trading and operations staff, it is ultimately the buy-side end user who dictates whether we have succeeded. And with buy-side users facing new regulatory and market hurdles, they need an execution platform that provides superior performance and dependability as well as compliance with existing and emerging regulatory requirements.

Why Go Out on a Limb?

Because, according to Will Rogers, that’s where the fruit is. The futures industry exists because of risk, and unlike “capital markets,” where securities are issued and sold to generate business capital, futures are primarily about risk mitigation. But while you can hedge oil consumption or metals prices, certain forms of risk are harder to identify and mitigate.

Take, for example, the risks inherent in rapidly evolving regulatory requirements. With new regulation spanning a variety of derivatives and trading operations, today’s buy-side user faces a growing wave of change that makes forecasting near-term events, let alone the distant future, increasingly difficult. With the Republican presidential candidate vowing to repeal Dodd-Frank, there is certainly a lot that remains up in the air.

Regulatory change is moving at such a rapid pace that some observers speak of “regulatory arbitrage” as a potential response to ambiguous or overreaching legislation. Derivatives trading has never been simple, but the onslaught of new challenges overlaid on market participants adds even more complexity to the business.

Then there are the debacles. Things that were simply given in the past, for example, thinking of established brokers and customer funds as the trading equivalent of bedrock, have gone out the window, and the buy-side must now hedge previously unthinkable scenarios. Who could have predicted established brokers such as MF Global and Peregrine would disappear virtually overnight?

In light of the post-crisis climate, the need for trading system stability and flexibility has never been greater. More than ever, buy-side traders are demanding reliable, flexible and compliant trading capabilities to keep up with an ever-changing landscape.

In awarding the 2012 Buy-Side Technology award to TT, the judges had much to commend their decision. For buy-side firms needing to run their derivatives book while safeguarding both their assets and their reputation, our clients tell us the TT platform is second to none. TT’s comprehensive risk controls provide system-wide exposure and P&L limits to ensure that all orders are validated and managed against pre-trade limits in real time without exception, and without compromise to our microsecond-level performance. The Synthetic Strategy Engine allows buy-side traders to create broker- and exchange-neutral synthetic orders for finely tailored execution management, and our new ADL™ allows them to build proprietary alpha-seeking and execution algos that are also broker neutral. The TT FIX Adapter provides a robust means of integrating third-party order-management and middle-office systems with TT, and allows buy-side portfolio managers to stage orders directly from their OMS to TT’s X_TRADER for immediate execution or care order handling.

We Live in Interesting Times

Old curses of questionable attribution aside, we do in fact live in a much-changing world. Markets, products and rules now evolve at a dizzying pace. TT recognizes that buy-side traders are facing more challenges, and to this end we continue to develop flexible and trustworthy capabilities for buy-side traders worldwide. We are grateful to have been selected to receive this year’s award from Buy-Side Technology, and remain ever-committed to providing superior capabilities to our buy-side end users.

TT is hosting several functions on Wednesday and Thursday of this week in conjunction with FIA Expo. These events are open to all registrants. Read on for more details.

Scenes from FIA Expo 2011

ADL™ Presentations & Consultations

Visit our ADL Demo Suite to attend a scheduled demonstration of TT’s newest algorithmic trading tool, ADL, or consult informally with an ADL expert. Find us in the Hilton’s Joliet Room on the third floor. No reservations are needed.

Wednesday’s ADL Presentations
11am Order Ticket & Order Management Algos
2pm OCOs & Sniper Algos

Thursday’s ADL Presentations
11am Scalping Algos
2pm Broker Productivity with ADL

ADL Consultations
Wednesday & Thursday
10:00 a.m. – 3:00 p.m

In-Booth Presentation with Eris Exchange

We’re co-hosting a presentation in our booth (#820) with Eris Exchange on Wednesday at 3:30 p.m. Eris’ CEO, Neal Brady, will provide an overview of the exchange and its products. Then, Jeff Mezger, senior product manager with TT, will demonstrate how to trade Eris products on X_TRADER®. Learn about TT’s new Eris Gateway, which will be available early next year.

Taste of Expo

We’ll be serving cold beer and hot sliders during Taste of Expo at 4:00 p.m. on Wednesday. Enjoy a beverage and a bite, and mingle with our team during this very popular event.

MultiBroker Preview

Throughout Expo, visit our booth to preview TT’s forthcoming MultiBroker functionality, which we’ll launch next year through our TTNET™ hosting service. MultiBroker will provide the buy side with one-click access to multiple FCMs from a single X_TRADER workstation or API, while delivering the same breadth of markets and superior speed, stability and accuracy of TT’s single-broker platform.

Still Need an Expo Pass?

If you aren’t yet registered for Expo, you can still get a free exhibit hall pass, compliments of TT. Simply print this invitation and register on site with the promo code 2708.

Hope to see you at Expo!

The operational costs of managing and maintaining a professional trading platform and the capital investment required to stand up the necessary infrastructure to support such a platform are substantial. This is particularly true for our TTNET™ hosting service, which provides the expansive functionality and robust performance of TT software along with global reach that spans the world’s major financial markets.

The TTNET global distribution network

The value proposition for customers of TTNET is the transfer of a significant portion of the aforementioned costs and risks to TT, while at the same time procuring higher quality services with lower overall costs than they could do on their own. It’s a similar value proposition of most service providers across all industries.

Our clients who utilize TTNET tell us they prefer our hosting services because it combines the advantages of our world-class, professional trading software platform with the advantages of a highly available, purpose-built infrastructure. An infrastructure deliberately tailored to meet the needs of professional traders, with attributes that include bare-metal computing performance, dedicated and performant connectivity options, and hosting proximity to, or even co-location with, major trading venues and other financial markets partners.

Providing these benefits, though, comes at a cost premium over more general-purpose IT hosting venues. And while we believe these benefits are in the best interest of our end users and worth a premium over lower-cost alternatives, we don’t believe our current implementation, execution and standard service offerings are as efficient or relevant as they could be, irrespective of the constraints of our current software platform. In short, there is room for improvement in both cost and quality.

The prominence of cloud computing in mainstream IT is accelerating the maturation of many IT technologies, and it is leading to better tools for automation and service deployment. But it’s also helping to dispel many industry misconceptions about the security, reliability and performance around three fundamental technologies of “the cloud”: multi-tenancy, virtualization and Internet connectivity—three fundamental technologies that are also fundamental cloud tenets because they directly impact scalability (and consequently cost).

Like all technologies, cloud technologies have their own challenges and limitations. But when applied intelligently and to the right problems, they are viable and cost-effective tools, even for our industry (see: NASDAQ and NYSE Technologies).

Those familiar with TTNET know that we’ve been leveraging many tenets of the cloud for a while now. In retrospect, TTNET is effectively a private cloud and has been since its inception. And while we plan to leverage cloud paradigms, cloud technologies, and even private and public services extensively in our next-generation platform, we’re not waiting for it to arrive before we take advantage of changing perceptions and extend our use of fundamental cloud tenets.

For example…

Historically, TT has only offered dedicated broker environments—meaning an end user in TTNET could only trade through one broker if he had a single X_TRADER® screen. But soon, TT will begin offering MultiBroker service to TTNET clients through a multi-tenant version of TT’s futures execution platform.

Designed as a single execution environment for traders supported by multiple brokers, MultiBroker is TT’s first foray into offering a true application-level, multi-tenant service. Multi-tenancy is a concept that can be applied to any layer of the IT service stack, from the physical layer of shared data center facilities (e.g., power, space and cooling) all the way up to the application layer serving user transactions. Typically, the further up the stack a service provider goes, the greater economies of scale that can be achieved. With MultiBroker, we are going way up the stack.

In addition to the commercial benefits MultiBroker will bring to our client base, its multi-tenant design will greatly enhance the scalability and efficiency of this service offering for both our customers and end users. And now, with the majority of our platform supporting multi-core technology, even greater scale can be achieved while maintaining competitive execution latency and efficient throughput scalability.

Our customers and end users who continue to utilize our original single-tenant hosting option in TTNET will not be left behind, as we are looking at improvements there as well. Today, TTNET uses virtualization technology and tools to support a number of management systems, but only for a very small percentage of trading-related applications, and only where functionality is out of the trade execution data path. Going forward, we plan to leverage virtualization technologies to support mainline trading applications in failover and disaster recovery situations where availability is paramount, but where some compromise in performance is acceptable. But even in the case of failover, by retaining the host’s proximity to the trading venue, we anticipate better performance than we offer today.

Finally, as our customers become more comfortable utilizing secure Internet connectivity, we are looking to transition more leased connections to the Internet. For example, we are evaluating the use of Internet as a backup connectivity option to dedicated private-line circuits without restrictions. This would result in lower connectivity costs to TTNET for our broker firms and end users. Additionally, while TT continues to expand and mature its Strategy Engine (SE) server-based execution solutions, including Autospreader SE, Synthetic SE and Algo SE, we expect more users to connect to TTNET directly via the Internet. As a consequence, we anticipate growing demand for lower-cost back-office connectivity options that offer “Internet-like” connectivity, but over a private cloud.

Look for more insights and perspectives on TTNET in my next blog. Thanks for reading.

Note: If you’re not familiar with X_STUDY®, I encourage you to review the X_STUDY materials on our website. You’ll gain a solid understanding of this trader-centric charting application, which is fully integrated with TT’s X_TRADER® platform and provided to all X_TRADER users at no additional cost.

As the product manager for X_STUDY, TT’s charting and analytics application, I’d like to talk about constant volume bars. Constant volume bars build bars based on fixed volume instead of fixed time. There are several advantages to constant volume bars when compared to time-based bars.

Shorter time-based bars, like one-minute and five-minute bars, are great during the day when there are many market participants and the market tempo is fast. When market tempo slows and price action begins to consolidate, shorter time-based bars will continue generating bars as time passes. Too many of these time-based bars will inevitably flatten out your analytics, which can then generate whipsawed losing trades or take you out of a good trade.

A Case for Constant Volume Bars

A constant volume bar conforms to the market’s tempo. As the market tempo slows, so will the formation of new bars. As the tempo increases, so will the number of bars created. Volume bars are ideal for when events happen in the marketplace, too. For example, the release of an economic event at 1:15 can leave your five-minute bar waiting until 1:20, while the volume bars have already created four new bars in that five-minute window. These four faster-responding volume bars give your strategy more opportunity to react to the event that has just occurred in the market.

Likewise, who needs 12 five-minute bars from 12:15 to 1:15 before that economic number comes out when volume is light? Your analytics will be flat with time-based bars and won’t be able to help you make decisions. A volume chart in this same period might only form one bar. The concept of constant volume bars creates an intelligent bar that reacts to the market’s trading volume.

An Example

Let’s look at the scenario below, which uses the ES Dec12 contract from earlier this month. Compare a five-minute chart to a 20,000-volume chart. It will show advantages for when markets have both a fast and slow tempo. The five-minute bar chart shows a one-bar spike in the morning hours. The 9:00 to 9:05 a.m. bar in ES spikes to 1450.00. Comparing this bar to the 20,000-volume chart, we can see that approximately 5½ bars were formed on the constant volume bar chart during the same time.

Now look at the overnight market above. Here we can see more than forty bars have formed on the five-minute bar chart. This many bars will cause most technical indicators to flatten out and any automated system to start generating false signals, especially if the technical indicators are using fast values like a simple moving average of six bars. (I actually do not display all the bars here; there are more off to the right of the chart. You can tell this by the little red arrow at the bottom of the five-minute chart.)


The 20,000-volume bar has only produced two bars, with the second one still incomplete. At the time of the screenshot, the bar was only half complete, with around 11,000 volume. This example illustrates the improvement constant volume bars provide in both fast- and slow-moving markets.

In Closing

In my experience, I’ve found that constant volume bars can really improve analytics and help eliminate some of the whipsaws.This isn’t to say time-based charts are unnecessary. In fact, I myself still use time-based charts in much of my analysis. I don’t think I could give up daily charts; they are just too ingrained in my analysis. Rather, I’m simply suggesting that you might gain a little edge by looking at a combination of volume-based and time-based charts.Until next time, plan the trade and trade the plan.

More than two years after the Dodd–Frank Act was passed, it’s surprising how much still remains unsettled with regard to what new regulations may be implemented and how the industry will be transformed. One of the few changes that seems certain is that over-the-counter (OTC) swaps will move to a centrally cleared model.

What remains to be seen is which model for trading and clearing interest rate swaps will ultimately win out. Will these swaps remain custom OTC contracts traded via a swap execution facility (SEF)? Or will the industry move toward an exchange model where swap-like futures are traded on a designated contract market?

Siding with Futures

It seems more and more as if the futures model will ultimately win out. Exchange-traded interest rate swap futures have margin efficiencies that the OTC model can’t match. A number of strategies that make use of OTC swaps today may no longer be profitable once these swap positions are subject to margin requirements, an issue which the substitution of swap futures for OTC contracts substantially alleviates.

The trend toward either the “swaps as futures” or “futures on swaps” model is noted by research firms such as TABB Group, but is also reinforced by moves the exchanges are making. For example, the Chicago Mercantile Exchange (CME) recently announced plans to list deliverable interest rate swap futures, and IntercontinentalExchange (ICE) is transitioning its OTC energy contracts to futures.

Making the Swap: Eris Exchange on TT

For these reasons, I was very excited last month when we announced our plans to provide connectivity to Eris Exchange. Eris has created products that capture the best of both worlds. Eris contracts are futures, which means they bring with them margin requirements substantially lower than comparable OTC contracts—up to 95 percent lower for accounts with highly correlated positions. At the same time, Eris products are designed to replicate the cash flows of OTC swaps while also allowing for custom coupons, effective dates and maturity dates to be specified, giving firms the ability to tailor the contracts precisely to their needs.

In addition to being an effective vehicle for corporations to hedge their business risks, a number of strategies based on Eris futures can be executed using TT’s suite of server-side execution tools, such as the Autospreader® Strategy Engine (Autospreader SE) or the new ADL™ visual programming platform with Algo Strategy Engine (Algo SE). These include:

  • Invoice spreads between the cheapest-to-deliver Chicago Board of Trade (CBOT) or NYSE Liffe U.S. treasury future and an Eris contract with a similar maturity
  • Swap spreads between an Eris future and a similar-maturity BrokerTec treasury
  • Eurodollar basis trades between Eris futures and CME or NYSE Liffe U.S. Eurodollars
  • Swap curve strategies between different Eris maturities, between Eris futures and BrokerTec cash treasuries or between Eris futures and CBOT or NYSE Liffe U.S. interest rate futures

We plan to roll out our support for Eris in two phases. The first phase, due out later this year, will add support for Eris’ IMM dated forward starting swaps, including Eris’ invoice spread leg contract. In phase two, we will add support for the rest of the Eris product suite, including spot starting swap futures.

Learn More

For more information, visit the Eris Exchange page on our website and read the recent news release announcing our plans to connect to Eris.

And if you’ll be attending FIA Expo later this month in Chicago, stop by our booth (#820) on Wednesday, October 31 at 3:30 p.m. to learn more about Eris futures and how you can trade Eris with TT. Free passes to the exhibit hall, compliments of TT, are available here.

Hope to see you at the show!