All posts by Steve Decker

Senior Product Manager


The recent CFTC concept release provided a thorough, detailed summary of the current state of electronic trading and risk controls, and asked for public comments with a set of 124 specific questions. The document itself is a significant effort, intended to serve as an impartial platform to stimulate discussion of current and best practices, and has received more than two dozen responses from industry participants.

However, the process reminded me of the following story about looking upstream for solutions to problems. Please bear with me as I may have embellished the story (just a bit) from its original script.

A prosperous village straddling a scenic river had a problem rescuing people who had fallen off an upstream bridge into the river. The number of rescues seemed to increase daily, and the villagers were up in arms demanding help for their over-worked rescue crews.

The village elders held a series of meetings and drew up a detailed plan of action. They would establish trained monitoring patrols, equipped with a new, elaborate alarm system that would quickly alert authorities when someone was spotted in the river. They would beef up the rescue crews with the newest, specialized equipment available and also keep additional rescue teams on call.


The elders, being very wise, also looked for ways to address the problem upstream at the source. So at the bridge, they planned to build entry gates to restrict access. Travelers would have to register to cross the bridge and, as part of the process, would have to prove that they were qualified to cross. The registration assured that if by chance they did fall in and needed rescue, they could later be identified and fined. Crossings would be limited both in frequency and in total number per day. Once you started to cross, if you changed your mind and abruptly turned back, you had to wait before you could cross again. “We only want serious travelers to make these trips, not inexperienced sightseers who might just cause accidents.”

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I was recently reacquainted with the book The Innovator’s Dilemma by Clayton M. Christensen (Harvard Business School Press, 1997). This classic work presents example after example of well-managed, successful companies across various industries, which failed to recognize the future impact of, and subsequently struggled to respond to, newer disruptive technologies.


A typical disruptive technology is initially designed to service a small emerging market, which appears less profitable to the established companies. Over time, the new technology matures to a level where it can move “up market” and become quickly adopted by the larger market before the established companies can respond in kind.

A fresh read on my electronic reader (how’s that for an ironic example of a disruptive technology!) reinforced what Christensen describes, that companies did not fail because of arrogance, laziness or poor management. They failed exactly because of the fact that they were well managed.

They understood their markets, diligently listened to their customers, and worked tirelessly to better meet their customers’ needs. But these seemingly sound business practices directly caused them to miss the “next big thing.”

Folly? Not…

While we naturally tend to focus on more recent disruptions in computer technology, retailing and manufacturing, not all lessons to be learned from history come from modern technology. Buried in a footnote is a mention of Robert Fulton’s steam powered ship, which was initially dismissed (aka “Fulton’s Folly”) with the thinking that it would never compete with the dominant ocean-going sailing ships of the time.

But what the steamship could do well was efficiently navigate the smaller inland waterways and reliably move in the absence of a steady breeze. The inland waterway market was much smaller than transatlantic shipping, but sufficiently large enough for the steamship makers to perfect their technology. Over time, steamship performance improved to where they could circumvent the globe. They were able to move “up market”’ and successfully penetrate transoceanic shipping. By then it was too late for the sailing industry, and not a single maker of sailing ships survived. The steamships ruled the seas.

So how do we learn from and (hopefully) avoid the mistakes from the past? It’s easy to say and hard to implement, but we need to deliberately innovate for both purposes—for today and for tomorrow.

Innovations Come in All Sizes

Not all innovations are as disruptive as the steamship was to the sailing industry, or the PC to minicomputers and mainframes. What may appear to be minor iterative improvements can sometimes greatly optimize current functionality. Larger architectural advancements can significantly improve the performance of existing products and systems.

These so called “sustaining” innovations should always be a necessary component of development focus. In fact, here at TT we spend the majority of our time building these types of sustaining innovations, e.g., working to make messages travel faster and safer, constantly looking to better streamline the user interface, etc. The positive tangible results of these improvements help produce the financial resources and capabilities that a company needs to continue to compete and grow within the marketplace. Without them, a company is doomed to slowly decay.

To identify nascent blips before they mature into a new dominant trend, a non-insignificant amount of effort also needs to be budgeted to focus specific time and research on areas away from the current tasks. Some companies have formalized this process such as Google’s 20 percent time and the McKinney Ten Percent. Intel’s internal resource allocation process is weighted towards each product’s gross margin as a way to automatically self-correct and allocate more resources to the growers and less to the decliners.

Decisions to allocate precious time and resources amongst competing priorities of sustaining work must be balanced against undertaking more risky “skunkworks” R&D-type projects, which may or may not bear fruit. For example, TT is actively exploring cloud and web technologies, in ways that may (or may not) eventually prove beneficial. We tend to think that they will be successful, but actually it really doesn’t matter what we think, as ultimately the marketplace will determine the outcome.

It is very tempting to easily dismiss these side-line projects, since they logically seem at the time as frivolous endeavors that may never be profitable. Until one is…at which time the firms that either ignored or starved investments in those areas find that they suddenly do not have the capabilities necessary to compete in the new area, and quickly lose market share to the newcomers.

Your Ego Won’t Like This

It is easy to agree with the obvious statement that the future winners are not known in advance. But it is much harder intellectually for smart, customer-focused business people to accept Christensen’s claim that not only are the future winners unknown, they are unknowable.

So hedge your bets to protect you from yourself. Continue to innovate on what you know in order to grow with your current clients. But do more than just “keep an eye out” for new ideas, and purposely structure a portion of your efforts—research, planning, prototyping—on small, OK-to-fail side projects. The end goal is to improve the chances that you participate as a future disruptor.

Thanks for reading.

“It’s not a question of enough, pal. It’s a zero-sum game. Somebody
wins, somebody loses. Money itself isn’t lost or made, it’s simply, uh,
transferred from one perception to another. Like magic.”
– Gordon Gekko

The futures markets are generally regarded as a classic example of a zero-sum game. Simply stated, a zero-sum game consists of one winner for every loser. When I play against you, if I win, then by definition you must lose. The net outcome of our efforts is zero.

Participants in a financial zero-sum game transfer money only amongst themselves as they win or lose. Winning traders do not increase the total pool of available funds, they obtain their winnings from the losing traders. Some pundits who label futures markets as zero sum also claim that futures differ from equity markets because in the futures markets, no new wealth is created.

Personally, I feel the zero-sum depiction incorrectly casts futures trading in an unfavorable light. To me, it portrays futures markets as providing little or no useful economic benefit, and instead as just a collection of private high-stakes games for greedy speculators.

By design, a single futures transaction matches the opposing views of one buyer and one seller. And yes, the net proceeds of completed trades do indeed impact the participants as the profits (and losses) are marked to market and ultimately transferred to their respective accounts. So in that respect, I do agree that an individual futures trade in and of itself is a zero sum.

Much More Than a Single Transaction

“The truth is more important than the facts.”
– Frank Lloyd Wright

Where I disagree with those who label futures trading as zero sum is the common disregard for the distinct economic benefits that occur due to the activity of futures buyers and futures sellers. Here’s a quick list of examples describing how their actions do indeed add value and positively impact the overall economy.

First, the fundamental reason why futures markets exist is to efficiently facilitate risk transfer from producers to speculators. This function provides a real economic benefit to effectively manage a business against uncertain variables, such as weather and economic changes. Imagine a world without futures markets for a second…how much would a gallon of gas have cost the day after Saddam Hussein set the Iraq oil fields on fire? Without the futures markets, producers would need to build those types of future uncertainty into their current-day prices.

Volatility is a popular buzzword these days. Futures markets
take the unmanaged, uncontrolled volatility that exists in the real world and
bring it into a controlled, regulated environment. This important role of futures markets is often overlooked and/or misunderstood by casual observers.

Second, the price discovery process provided by freely traded markets constantly assimilates all available information to produce the best possible assessment of current value. Not only are price levels established for today’s date, but the breadth of available futures contracts forecast prices for months and even years in advance. Name another method that can better predict a future interest rate or the prices of specific global commodities several years from now.

Third, the one buyer/one seller transaction—where I win and you lose—does not occur without a great deal of associated enabling capabilities. Someone looking to consummate a transaction equivalent to the purchase of a futures contract does not privately locate a seller on their own, negotiate the price and terms and conduct the trade. An extensive fabric of supporting functions has been developed to facilitate the ability for that trade to even occur. Futures trading has evolved far beyond the necessary standardized contract terms and centralized order matching and clearing. Data center facility providers, telecommunications lines and equipment makers, computer hardware providers and software vendors have all invested time, effort and capital in an extremely competitive quest to better facilitate electronic futures trading. Not only do the futures buyer and seller benefit from these efforts, but the providers themselves (including their employees and shareholders) benefit according to the success of their contributions.

Innovation and Ingenuity Add Value

Lastly, the potential financial reward inherent in futures trading ensures a continuous stream of new ideas from traders looking to identify and capitalize on profitable trading opportunities. In parallel, the efforts by others focused on creating new markets and contracts, along with developing more efficient means to submit, match and process transactions, all work to add value and help increase trading volumes.

When new ideas and innovation move from thought to reality, the contributions benefit more than the originators. The entire market grows and prospers, becoming larger and stronger from these new additions. Human ingenuity can indeed create new wealth.

I suppose that you could argue that the examples I’ve described encompass more than “futures trading” and should more correctly be associated with the “futures industry”. But even so, to me it is clear that a strong, vibrant futures industry provides numerous benefits beyond the individual recipients of each winning trade. Not to try to spin a pun, but while some say zero sum, I say the futures industry provides something much more.

Thanks for reading.


Every time I meet with customers I ask them the same question: “Why do you use X_TRADER?” Some sample responses:

“Because of your spreader.”
“It’s the most reliable system I’ve ever used.”
“Your automated trading is second to none.”
“You do spread charts the right way.”
“It’s flexible. I can configure it the way I like.”

This is a biased sample, of course, since the traders I ask are already using X_TRADER. But the answers are revealing. And there is a strong underlying theme to the replies.They use X_TRADER every day for one simple reason: Because it is very good at what it is supposed to do.

Forgive me if this sounds like boasting, but, hey, I’m just reporting what I hear as the X_TRADER product manager. And after all, this is a TT-sponsored product blog. 🙂
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