I have always used Trade Station. Before that I used System Writer, the original product from Omega Research in Miami. On the execution side I know there are some newer and perhaps more powerful tools out there but IÃ¢â‚¬â„¢m very comfortable with Trade Station. I have come across a new package that has some promise called Neoticker. I havenÃ¢â‚¬â„¢t done a lot of research, but is does auto execution for a number of FX platforms. It appears to be programmable for any interface though, and I would expect it to soon have a Trade Station component.
If not, it looks like the code is open so that you can develop your own link between your computer and an FCMÃ¢â‚¬â„¢s API.
Trade StationÃ¢â‚¬â„¢s programming language may have some limitations, but I rarely bump up against them. And I have used the code for so long, I am very comfortable with knowing that I will achieve the expected result.
As in most things in life, even if a package has 100 bells and whistles, there are really just a handful of day-to-day functions that you rely on. And I have found that from an achievability point of view, simpler is often better.
Do you regard the tools you currently use as the best fit for your trading and is there any additional functionality that you would particularly value?
The loss of the Trade Bolt LLC product, which enabled a functional and reliable link between the TradeStation Platform and several execution applications, has been a real loss. In fact, there were several systems that I found were better traded through Trade Bolt than Trade Station itself.
For instance, I discovered an unknown bug in the automatic execution piece of Trade Station. Since many of the trades I take can last several days, the stops are dynamically adjusted based on the trend. I actually had the same system running on two different computers, one going directly to Trade Station, and one using Trade Bolt for execution. The glitch I discovered was that Trade Station would send the order for a stop loss or profit target, but it didnÃ¢â‚¬â„¢t retain the memory of the position. So, the order would get sent and rejected, because TradestationÃ¢â‚¬â„¢s logic did not include keeping track of the open position, within the interface between the computer and the brokerage. One day I saw a trade in the currencies exit at a profit on Trade Bolt, and when I looked over at the Trade Station computer, although the chart showed the position as closed, the tracking center showed it was still open! So, for daytrading, the Trade Station logic was acceptable, but long term trading required me to do significant reprogramming to make sure the stops and targets would get filled.
A replacement product of equal value to Trade Bolt would make things easier for me. We have some in house tools for doing this but to be frank they just donÃ¢â‚¬â„¢t match what Trade Bolt did - at the moment. The sudden withdrawal of this product has been a blow to the entire trading community. There are some lesser robust products out there, but dollar for dollar, Trade Bolt was a great product. I hope that someone revives the technology, as it seems a shame to waste such a valuable tool for automated trading.
Do you use the same tools for developing FX trading systems as you do for other markets?
The way I do it itÃ¢â‚¬â„¢s identical. The same indicators and techniques are used. Of course the parameters may change but as far as I am concerned there is data input, which is a series of numbers and I just crunch those numbers till they start to make sense. As long as a market has the liquidity to deal adequately with the order flow it makes no difference to me whether I am modelling data on forex or on index or on commodity futures or on stocks.
For me, the most important tool is price. I have used a few of my own proprietary indicators, but for the most part the indicators lag price. So, the levels I look at, open, high low close, special support and resistance numbers are all calculated the same way whether I am trading the British Pound or the Emini Russell. I would say that the last four years have seen explosive growth in the overnight and electronic markets. So, form that perspective, I have had to adjust my systems to run 24 hours a day. A few years ago, you could just shut the computer off and walk away with your OCO stop and target once the day market ended. Now, especially for FX, you need to be able to enter positions in the overnight markets, rather than waiting for the morning open in the United States.
Once again, I think that as trading platforms offer more and more capabilities, I think that people get lost in the myriad choices available to them.
There is a tendency to try and use every feature, whether or not it adds any value to the trading itself. ItÃ¢â‚¬â„¢s almost like people feel the need to use something just because it is there.
I am firmly in the K.I.S.S. camp Ã¢â‚¬â€œ keep it simple and straightforward and you will have fewer unexpected outcomes.
Are there any characteristics of FX trading that in your view require particular tools or data sets or a radically different modelling approach from other markets?
Though the tools as I said are identical, different volatility and risk parameters apply to every different market. For example FX has a lower beta than say, than the index futures. This is part of its attractiveness of course. The combination of lower volatility in deep liquid markets makes it easier to design systems that can typically be more geared than similar systems in say, the equity markets.
The fact that the market is open practically around the clock makes it easy to design a series of smooth continuously operating and fully automated trading systems.
The depth of the FX market also allows me to do strategies I could not even consider, say in the index futures. If I am placing an order for a ten lot in the Emini Russell, I know I am going to get hit with anywhere from two to four ticks of slippage. That makes it very difficult to employ any kind of scalping activity. Honestly, sometimes even a ten lot is enough to move that market. Of course, the Emini S&P is much deeper, but the range has declined much over the last couple of years, I have been forced to trade the Russell.
But more and more of my trading will be in the FX markets. This means that I can get many more trades each day, using the same indicators.
Is your preference for trading FX futures or FX spot and are there particular reasons for any preference?
My preference is to trade spot FX. The volume on the FX futures has fallen significantly over last five years and increasingly I looking to the spot markets. There are other advantages, of course, such as earning interest on some FX spot positions. However some clients of mine are set up to trade futures, and therefore it makes it easy to execute trades in the futures markets for their accounts.
Also, there are times in the past when, due to its more limited liquidity the forex futures have suffered spikes whereas the spot market is extremely stable and indicative of the real market. The last thing one needs in any trading system is being whipsawed in and out of positions due to a spike in the futures when the underlying spot doesnÃ¢â‚¬â„¢t move the same.
How much difference has electronic trading made to your operations in terms of workflow efficiency?
A huge and quantitative difference. Absolutely seismic! There is simply no comparison with the level of opportunity previously and now. I have been trading for over 20 years now, and I remember using a Quotrek to track the prices of my positions. The quotes I had were delayed from the market. It was sort of like a sporting event on taped delay! You were really just flying blind. Of course, back in those days, brokers would get 20 calls a day from me to find out what the prices were.
I had several end of day quote services, including CSI. So almost all of my trading activity had to be based on just the daily data. There was no way for me to analyse the market on a minute-by-minute basis, much less a tick-by-tick basis.
And the staggering reality is, that back then, we would often have HUGE moves. The futures markets were very young. The S&P futures had only been trading for a couple of years. So, the boys in the pit were absolutely controlling the market. Real time data back then was prohibitively expensive, and after taking a couple of brutal poundings in the market, I stopped trading and just switched to buy and hold strategies. This was back in the mid 1980Ã¢â‚¬â„¢s.
I really did not get involved again until the creation of Trade Station. The ability to get real time quotes, and charting indicators at a reasonable cost was a tremendous relief. I think my original Trade Station block number was in the triple digits, so I was definitely on the forefront of that revolution, which really opened up a whole new world to me.
Do you regard operational efficiencies as the main advantage of electronic FX trading, or has the electronic environment allowed you to diversify more and use methods/techniques not possible in a manual environment? (E.g. fully automated trading.)
Of course it allows you to do things that cannot be done in manual environment because of the speed and control. The number of systems and the small timeframes that one can use to run such systems was unimaginable before automated electronic execution. It was simply not possible for a human being, however good to execute so consistently and efficiently as is possible with fully automated mechanical trading systems coupled with electronic execution. It is now possible to literally micro control the risk.
And that makes trading much safer. I am also a big believer in diversification. Having more speed allows me to diversify not only between many markets, but also by implementing multiple algorithms on the same instrument. At any point in the day, I probably have several systems that are trading the same unit, whether itÃ¢â‚¬â„¢s the Pound, or the Yen does not matter. But the reality is that having multiple strategies for the same contract is hugely beneficial. I might have a very short-term system in the Yen, and it gets stopped out due to a spike. But I also have a long-term system going on as well, which can hang in there.
Has integrating the FX electronic trading tools you currently use been a matter of Ã¢â‚¬Å“plug and playÃ¢â‚¬Â? Or has a significant amount of integration work been necessary?
A significant amount of integration work has been necessary. I think this is always the case. Every broker has a different platform. And every platform has a different datafeed that can affect your performance. So, the biggest challenge is to make sure that the system you have designed gets the most accurate data possible; otherwise, you risk having your actual performance veer dramatically away from the true equity curve. There are some instances where little effort is required in implementation. But that is the exception, not the rule. Of course, it also depends on what type of trader you are. A short-term scalper needs far less electronic information than I do. And he is only taking a taking a few mini lots for his personal account. I am trading size and for multiple accounts. I have to make sure that each link in the chain, from the data feed, to the system platform to the connection to the FX market is solidly in place.
Were the electronic tools you use a key part of your recent success in the Robbins World Cup FX division? If so, how?
Yes. They were because they allowed me to have the systems traded totally automatically. I didnÃ¢â‚¬â„¢t even have to be there. The system traded for me automatically. I won the World Cup Forex Championship using a fully automated trading system.
I designed the system and then left it to run. ThatÃ¢â‚¬â„¢s the beauty of a good automated trading system.
And it has the additional benefit of preventing you from Ã¢â‚¬Å“tinkeringÃ¢â‚¬Â in the middle of a trade. Too many traders get antsy when a trade begins, and ultimately harm their performance by injecting their emotions into the trading. Being 100 percent mechanical and having automatic execution removes that temptation. The old adage, plan your trade and then trade your plan is the most important advice any trader can remember. So, Ã¢â‚¬Å“staying out of the wayÃ¢â‚¬Â actually dramatically enhances my performance!
Where do you see the future of electronic FX lying?
Firstly I see more and more volume in the second line currencies traded. Electronic markets are so much more transparent they create opportunities in FX markets open to broad participation that no one would have dreamed of trading before. This expansion of the opportunity window has only just begun. Electronic markets are making second and even third tier currencies even more open to trade. As people in these countries discover that they can trade their local currency it will naturally expand the liquidity and movement in these currencies. ItÃ¢â‚¬â„¢s simply a natural extension of free markets. I love that. I see this all as the increased democratisation of the markets via the Ã¢â‚¬Å“mini contractsÃ¢â‚¬Â. Increasingly you see the small guy trading spot FX. This, in my opinion has also just begun. It can only grow more as more people come online.
Secondly I see a continued decline in the role of the currency futures markets as opposed to spot. There reaches a point in many markets when they are simply not worth trading anymore and a contract dies. This happened with eggs futures (if you remember them), and also with the German Bund contract in London, as the market moved to Germany away from LIFFE to the DTB. It has happened with many markets. It may happen eventually with FX futures. The focus simply shifts as traders prefer to trade elsewhere. Since the FX market is so immense I am not saying this will necessarily happen in the forex futures. Because even if its relative size is small compared with the spot FX markets, it may be able to continue to function as a future as a matter of convenience for the moment for those with futures trading accounts. But you canÃ¢â‚¬â„¢t exclude this possibility.
Thirdly, it is clear that electronic spot FX brokers have proliferated far and wide, starting with CMC and Barclays in the 1990Ã¢â‚¬â„¢s and moving now to a massive proliferation. Any form of global regulation will naturally reduce the number of brokers significantly. ItÃ¢â‚¬â„¢s clear that the market will continue to become more competitive in terms of pips charged at the retail end until the differential practically disappears at some point.
The electronic market has some way to go. Certainly in terms of automated trading systems. But it can only grow.