Building a financial trading system from the wide variety of components available in the market can be daunting. Doing it right requires you to consider multiple functions a typical trading system is required to do, then selecting the best tool for the job.
One of the main challenges when buying or building a financial trading system is the sheer number of choices. Trading software ranges from cheap "every man" applications and shareware to full-blooded enterprise systems designed for the largest banks and hedge funds. So the first question is "where do I fit in the range of size and sophistication?" This helps define the features you need, the money you will spend, and the vendors you will buy from...or build if you like that path.
A smaller firm of 10 traders implementing different strategies doesn't require an elaborate financial trading system designed for a big i-bank. However, your traders are probably sophisticated enough to need real feature -- trading millions in stocks, futures and forex on a daily basis requires the ability to create and manage multiple strategies easily. A firm this size needs something configurable, componentized, transparent and flexible.
The main parts of a financial trading system are the trading strategy builder, watch lists, execution methods, price-volume data module, position tracker, P&L reporting and risk analytics. Depending on your needs, two more components to consider are accounting and an OMS. The boundary between your trading, accounting and order management systems is up to you. You can rely on your broker for much of this.
Excel software is one of the most popular solutions for a financial trading system. Excel allows traders to program simple or elaborate strategies with formulas and VBA. It takes some time to learn the skills, but learning is incremental and the resources are essentially free. Excel actually has a full software coding module with the ability to add subroutines, integrate other code into the VBA, and add User controls such as buttons, charts, lists and dropdowns. This allows you to recreate the functionality of very expensive software platforms at a fraction of the cost. Prices and fundamental information can be automatically imported via DDE link. Technical indicator packages are available or can be hand-coded. There are no limits to the trading strategies that can be implemented in Excel. Pre- and post-trade limits, market risk, sensitivities and other analytics can be added.
Trade execution in a financial trading system is best left to dedicated broker systems, either retail or prime broker. In the case of a corporate treasury, this may be a sell-side investment bank's online system, or even direct order entry into electronic markets, ECNs, dark pools and other liquidity centers. Typically, this is accomplished by dedicated order management systems (OMS) with accessible APIs and a wide range of order types. There is really no point trying to use anything else.
Implementing an Excel-based financial trading system requires defining the trading strategy, importing and managing price-volume data, computing the right position sizes to balance risk and return, reporting, back testing, graphs, tables, watch lists, etc. You can find add-ins or build components for each part of the process. Add-ins are available for market risk, statistics, greeks, valuation and many other fuctions. A quant can build an entire tool chest in Excel with integrations to FinCad, Matlab and similar software.
These are a few of the considerations when planning a financial trading system build or buy.
One of the main challenges when buying or building a financial trading system is the sheer number of choices. Trading software ranges from cheap "every man" applications and shareware to full-blooded enterprise systems designed for the largest banks and hedge funds. So the first question is "where do I fit in the range of size and sophistication?" This helps define the features you need, the money you will spend, and the vendors you will buy from...or build if you like that path.
A smaller firm of 10 traders implementing different strategies doesn't require an elaborate financial trading system designed for a big i-bank. However, your traders are probably sophisticated enough to need real feature -- trading millions in stocks, futures and forex on a daily basis requires the ability to create and manage multiple strategies easily. A firm this size needs something configurable, componentized, transparent and flexible.
The main parts of a financial trading system are the trading strategy builder, watch lists, execution methods, price-volume data module, position tracker, P&L reporting and risk analytics. Depending on your needs, two more components to consider are accounting and an OMS. The boundary between your trading, accounting and order management systems is up to you. You can rely on your broker for much of this.
Excel software is one of the most popular solutions for a financial trading system. Excel allows traders to program simple or elaborate strategies with formulas and VBA. It takes some time to learn the skills, but learning is incremental and the resources are essentially free. Excel actually has a full software coding module with the ability to add subroutines, integrate other code into the VBA, and add User controls such as buttons, charts, lists and dropdowns. This allows you to recreate the functionality of very expensive software platforms at a fraction of the cost. Prices and fundamental information can be automatically imported via DDE link. Technical indicator packages are available or can be hand-coded. There are no limits to the trading strategies that can be implemented in Excel. Pre- and post-trade limits, market risk, sensitivities and other analytics can be added.
Trade execution in a financial trading system is best left to dedicated broker systems, either retail or prime broker. In the case of a corporate treasury, this may be a sell-side investment bank's online system, or even direct order entry into electronic markets, ECNs, dark pools and other liquidity centers. Typically, this is accomplished by dedicated order management systems (OMS) with accessible APIs and a wide range of order types. There is really no point trying to use anything else.
Implementing an Excel-based financial trading system requires defining the trading strategy, importing and managing price-volume data, computing the right position sizes to balance risk and return, reporting, back testing, graphs, tables, watch lists, etc. You can find add-ins or build components for each part of the process. Add-ins are available for market risk, statistics, greeks, valuation and many other fuctions. A quant can build an entire tool chest in Excel with integrations to FinCad, Matlab and similar software.
These are a few of the considerations when planning a financial trading system build or buy.
About the Author:
A top quality financial trading system uses special tool kits and components designed for the purpose. Learn more about these components and how to implement them in Excel at ExcelTradingModels.
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