The Quant Toolbox: Developing a strategy development Workflow for FX trading
The quant bug has finally infected the FX market. The asset class originally known for its slow adoption of technology and small concentration of major players â€“ primarily central banks and government institutions â€“ has exploded, attracting a wide range of quantitative hedge funds, commodities trading advisors (CTAs) and other financial institutions ready to take on this growing market. In fact, every quant firm interviewed for a recent Aite Group study stated that they planned to add new instruments and geographies in 2010, and that FX was one of the two most popular additions. This statistic confirms that as liquidity within the FX market increases, so does the number of traders looking to capitalize on new opportunities. With trillions of U.S. dollars traded daily and more than US$175 trillion placed with FX providers in 2009, this trend appears to have the staying power necessary to transform the FX market.
As the FX trading community evolves from simple analyses to a more quantitative approach, so does the entire workflow and lifecycle of the FX trade. To remain competitive in today’s environment, FX traders can no longer rely on analyses developed in Microsoft Excel or other basic programs. They need access to more data, and computing power, than what current primitive structures allows. With an increase in quantitative trading, comes a need for robust quantitative strategy development tools that can be deployed on an enterprise level.
Yet it is important to note that quantitative platforms, and strategies, are not created equally. The modeling market is fragmented, often divided by product type or asset class offering a number of options to today’s traders, further adding to firms’ confusion as they look to update current infrastructure to maintain their competitive edge in this evolving space.
In this article, we will examine some of the most common types of quantitative strategies...continued