A trading room with a view

A trading room with a view

Kharouf, Jim

As open outcry markets move toward electronic trading and screen-based exchanges move toward easier access, traders are looking for ways to trade multiple markets from one computer. Here’s a snapshot at what’s out there.

The move toward technology in trading is supposed to make traders’ lives easier and simpler while offering more markets at less cost. What trader doesn’t want the option of trading U.S. Treasury bonds, German bunds and French notional and long gilt futures from a single desktop computer screen? But sifting through the endless line of products overwhelms many traders. Here we’ll look at some front-end software products meant to ease the confusion.

Today’s newer exchange systems – Eurex, Matif’s NSC system, which is also Globex2, and the OM system – are built with open architecture that allows users to add their own software. As illustrated last month (“Exchanges Put On New Game Faces,” page 86), each exchange offers its own screen, which also is called a front-end application. Simply put, front-end application software is what you see on your screen when you trade. What makes front-end software so valuable is that it can allow trading on more than one market from a single screen. Some software provided by the exchanges already does that. OM’s Orc application allows traders multiple market access on equity and futures markets. But others don’t. So what can a trader do?

Options Larry Arnowitz, managing director of GNI in Chicago, says he noticed a strong shift toward electronic trading two years ago. Since then, the London-based company has been making the transition into trading systems. In June, GNI opened its first electronic trading floor in London. And this fall, the Chicago office plans to offer trading to clients who want access to Frankfurt, Paris and London.

“Businesses using electronic systems was so overwhelming we had to do something,” says Arnowitz, after spending a day at an electronic trading seminar in Chicago two years ago. “It wasn’t just the back office, it was the front office as well.”

Electronic trading rooms, where clients can come in and trade from their office or do so remotely using the same software, is the way futures trades will be done in the coming years, Arnowitz says.

“[Electronic trading] reduces errors,” he says. “It just makes it a safer and more efficient business. And a front end eliminates all duplication of hardware.”

This is just the beginning for front-end applications for futures and options.

Many companies selling this software are just a few years old. All the software officials interviewed for this article say the key to using their software is simplicity. Just how simple depends on how you trade. In GM’s case, the key was to find software that could be used by virtually all of its clients anywhere. GNI chose PAT Systems, a firm that broke into the technology business by developing hand-held devices. But as multiple-market access evolved, the London-based firm has transferred its hand-held format to the computer screen. Even though PAT’s founder Thomas Theys says exchanges want to provide a frontend application to their members, they never will be able to keep up with new products and independent software providers.

“As an exchange, the key is distribution,” Theys says. “They want to get out of the hardware business. If I’m a trader, there is no way I can fit every exchange screen on my desk. And there is no way an exchange can offer a front-end that sings and dances for everybody. So I say let people like me do all the singing and dancing.”

Unlike many front-end software systems on the market, PATs software is designed for traders who generally want to trade markets very simply. This application allows flexible configuration of trading, order book and market quotes while ignoring all the in-depth risk management and charting tools provided by other applications providers. By keeping the system a strict trading application, it requires far less computer memory.

Adding a few options Other systems provide far more bells and whistles but cost more. All systems vary in price, depending on the number of markets traded, how many screens will be used and how many features are needed. Some software providers offer risk management tools or special trading functions separately. And with front-end systems comes exchange access. To lease the software can cost anywhere from $750 to over $1,900 per machine per month. For non-members of various exchanges, additional fees per exchange are added. That also does not count the investment in the hardware itself, which usually requires a workstation, a more robust system than a basic Pentium PC.

Once traders get over the sticker shock, these systems provide an incredible number of functions. Trading Technologies, based in Evanston, Ill., offers a Windowsbased system that allows trades to be entered by clicking on a contract, price or quantity. Windows allow for multiple contract listings, and the order book can be customized to the trader’s needs. Unlike the PAT product, Trading Technologies’ front-end system, called X-trader, is designed more for brokers or trading advisors who trade for clients and need to keep track of orders easily. This system requires more memory than PAT’s front-end, but does not offer charting or risk management as part of the basic software. Company officials believe the more you add, the slower the system operates. While that’s disputed by competing providers, Trading Technologies is geared to offering simple trading and order book keeping. The system runs on a dedicated network, not on the Internet.

The Internet is great until there’s a large amount of volume,” says Alex Lamb of Trading Technologies. “And the Internet isn’t at a level where I’d risk my institutional business on a daily basis.”

Another system, from Paris-based GL Trade, which is owned by the Paris Stock Exchange (SBF), commands almost a 90% market share in Paris. There is some resentment in the industry of GL because its software was introduced on the Paris options market, Monep, in 1987 and other Paris markets in 1992. Some traders believe the software was forced on them by the exchange.

Now that the front-end market is opening up, there are complaints from software vendors that the SBF did not release the interface codes to outside vendors in a timely manner. Nonetheless, GL is one of the largest software providers in the industry. Its products are compatible with 23 equity and futures exchanges.

The GL Win product not only allows trading on multiple markets, but it also can be set up for automatic arbitrage trading. The system also provides charting and risk management tools (see “GL Trade: GL Win,” page 71).

A similar system from the Frankfurt-based Realtime Systems Group (RTS) now is being marketed in the U.S. RTS customers in Frankfurt generate about 40% of the volume on Eurex and about 90% of the volume on the Frankfurt stock exchange. The Realtime Trading Desktop is also a Cadillac version of a trading system. It not only provides click trading, it also includes real-time risk management tools that allow brokers to track customer accounts and the firm’s performance. The RTS system also provides tick-by-tick charting with basic tools, such as stochastics, momentum indicators and moving averages.

The system is built for stocks and derivatives, but it’s known for its options trading and risk management tools. Traders can view options volatility and set parameters that automatically trigger trades based on theoretical values. Simulation trades also can be setup with risk management data so a firm can determine a trade’s impact on its bottom line.

Each system has several confirmation features that attempt to prevent traders from making a 10-lot vs. a 100-lot order mistake. There’s no question, new and simpler systems will come out. But traders can use these tools as a way to trade the world today. FM

Copyright Oster Communications, Inc. Nov 1998

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