How Open Source Trading Systems Improve Profitability

As a trader, you know how thin margins have been stretched. You have to be even smarter, even faster, and even more disciplined to grind out a profit in the world of high frequency trading.

A few seconds can mean the difference between a profit and a loss, so traders need agile, nimble systems that can respond to the complexity and speed of today’s markets.

If a malfunction occurs, it needs to be identified and resolved immediately, preferably by your own support desk or development team, if not by the software vendor. Either way you should have the ability to access the source code of your trading platform to troubleshoot the software to solve issues right away.

Unfortunately, one of the major problems with the current state of trading software is that it is built on the old, brittle, closed proprietary model.

In this article, we’ll take a look at how closed trading systems fail you and how you could save money by making the switch to open source software.

What is closed system proprietary software?

If you are currently using trading software, chances are it’s a closed system – in other words the source code is not available to the public.

That essentially means that the only people who can detect or fix problems in the software are employees of the provider, or their outsourced customer service team.

So when something goes wrong like a bug or a defect in the code, the software provider is the only one who can fix it.

We’ll talk about why that’s a problem later in this article when we discuss the benefits of Open Source Software.

When closed systems fail:

The pattern with closed-source software is usually that a defect report will be filed and then there will be a delay as the vendor decides whether or not to issue an update.

Because the system is closed, you have no access to the source code to determine the cause of the problem or make a fix yourself. You lose control of the situation as the vendor determines the timing of next steps.

This delay can cost a fortune in missed opportunities as the software vendor’s team considers when to fix the defect.

Open Source Software:

Open source software offers a different model.

OSS is a software development methodology defined by human readable code made available in the public domain and a spirit of community and collaboration.

When software is open source, the code is available to the public and developers or authors are free to search for bugs, suggest improvements and contribute to the evolution of the software.

How OSS fixes bugs

One of the great strengths of OSS is its reliability or it’s ability to avoid bugs.

We’ll define bugs as defects, which cause incorrect operation, data loss, or sudden failures of the software.

In fact OSS offers a much faster time to fix than closed systems. Because of the availability of the source code, severe defects tend to be fixed within hours of being detected. Authors who discover a bug will commonly fix it and then report it to the maintainers as well as issuing their own update. Users then have the choice of either using the unofficial fix or waiting for an “official” version.

OSS encourages a large market of early adopters who actively help to debug the software leading to a high level of robustness in open source products.

Robustness

In computer science the term robustness refers to the ability of a system or software to cope with errors during execution.

Robustness means that software has gone through the necessary troubleshooting it needed and is now ready to function without any bugs defects or problems that can cost you millions of dollars in the blink of an eye. In other words it is reliable.

Because of the network of authors and developers OSS becomes robust much earlier than closed systems do because developers enjoy debugging the code and can gain status and legitimacy for their work. These incentives lead to more debugging and a better overall product for the consumer.

I started this article by having you imagine your trading software malfunctioning, the system crashing and you losing out on the trade of a lifetime.

Bugs and software malfunctions are a part of life in the digital world, but you don’t have to become a hostage to delayed responses from software vendors or updates that take weeks to arrive.

Make the change to Open Source trading software today by downloading Marketcetera Here and joining the Open Source Software Movement!

How Trading Has Changed, and Why That’s Bad For Proprietary Trading Systems.

Trading, whether it’s stocks, bonds, forex, or any other kind of asset class has changed dramatically over the last few years. Technology, the financial crisis, and new regulations among other factors have combined to make trading in 2016 and beyond look completely different than what has come before.

This is bad news for the old ways of doing business and even worse news for the closed systems that were previously used in trading.

How Trading Changed

Since the financial crisis we have seen the emergence of “high frequency trading” (or what we simply call today “trading.”) High frequency trading (HFT) uses high-speed computers and software to enter and exit trades based on algorithms related to price, volume and other variables.

The rise of HFT has been exploited by bad actors introducing techniques such as quote stuffing in order to gain an unfair edge.

At the same time as HFT was becoming the new normal, government regulators are becoming more determined to crack down on the bad actors and are issuing more and more regulations leading to a need for greater transparency both for the government and for investor peace of mind.

Meanwhile, the trading community now has to keep up with the new latency norms, avoid the actions of bad actors and comply with all the new regulations!

Compounding these problems is the old model of brittle, closed, proprietary software.

The Weaknesses of Closed Systems

One of the major problems facing trading firms is the historic industry reliance on closed trading systems.

These systems are sold and maintained by service providers who are already focused on their next sale by the time you’re setting up your system.

Proprietary service providers are waging a territorial battle for your company’s IT budget. Once they establish a beachhead, they want to upsell you with ancillary services and technologies. Start with market data and expand with a trading platform. Start with a trading platform and offer custom algorithms. There is no incentive in this model to make their technologies open or extensible or to make it easy to integrate with other technology solutions you have implemented in your environment. They certainly do not want to make it easy for your team to do your own integration work.

Furthermore, because the systems are closed, meaning that their source code is not openly available, bugs and glitches which could cost you hundreds of thousands of dollars in a single trade have to be fixed by the supplying company.

If they even notice them…

As I mentioned earlier their focus is on selling the same software to the next customer rather than making sure it’s bug-free.

What is Open Source Software?

The alternative to closed trading systems is open source software or OSS.

Founded in the 1970s out of the Free Software movement, which sought to combat soaring software prices, the basics of the open source philosophy are that better software is created through transparency of code and widely distributed peer review.

This leads to high quality software and documentation without the expensive licensing fees.

One of the most common misconceptions about OSS that has kept it from becoming more popular in the trading community is that you will have to reveal your proprietary algorithms or other trade secrets.

Nothing could be further from the truth!

You can download and use OSS software without ever revealing how the software is being used!

Because there are no sales people or license compliance checks, you could argue that OSS is actually safer than other commercial systems on the market because there are less people involved in the process.

Let’s look at 3 more benefits of using OSS:

1. Flexibility. Software flexibility is all about being able to choose solutions suitable for the end user which is you. This means that the software should be built with a flexible infrastructure, which will allow the trader to be agile and pivot when necessary to change strategies or cash in on new trends. OSS is the most flexible because there are no financial incentives to lock down one system or make it proprietary.
2. Freedom. Another major benefit to OSS for trading is freedom. Freedom from your software vendor. No longer will you be at the whims of some software developer you’ve never heard of or a company that might go out of business one day. In addition to freedom from software suppliers, you can also gain the freedom to modify your software however you see fit. You are no longer limited by what a company believes you need. Your software can be completely tailored to your trading business.
3. Cost. Closed trading systems can cost hundreds of thousands of dollars, whereas most OSS trading systems such as Marketcetera have free downloads like you can find Here. Additionally, if you do need a commercial license for a commercial module to accelerate your deployment or technical support, these services are also available.

In this article we looked at how trading has changed, and why that is bad news for closed systems.

We started off by taking a look at how trading has changed specifically looking into how high frequency trading has made life more complicated for today’s traders.

Then we examined why these new developments are bad for closed systems, most notably the lack of transparency and the focus on marketing more software rather than making sure the software is meeting the user’s needs.

Lastly we looked at what Open Source Software is, essentially free to download software that is fully customizable and supported by a community of developers and authors who find and fix bugs before they become problems, and consistently revise the software so it becomes better.

The benefits of OSS are increased flexibility, freedom to design the software however you want and a way way lower cost.

By now the choice is clear, closed systems are going the way of the dinosaur and OSS trading systems are the way of the future.

Download your FREE copy of Marketcetera Here.

Flexibility. The Trader’s Best Friend

Nowadays, with trading volumes down and new clients scarce, brokers are trying all their best tricks – and a few of their worst – in a desperate bid to lock in traders for the longest period of time possible.

Yet, once committed to a particular broker, the trader loses his or her flexibility…. and potential trading gains, too. So, successful traders maintain their freedom by choosing a broker-neutral, third party trading platform.

Financial services professionals, including brokers, have long been aware that customers are fickle:  They may be persuaded to sign up for trading and/or account management services on the spur of the moment, but the love affair is short-lived. Soon, the trader’s wandering eye searches for something better.

The law of the broker jungle – Provide clear, consistent value or perish

When the trader spots a better opportunity elsewhere, financial self-interest leads them to abandon their old broker in search of broader opportunities with higher gains. Of course, it’s the law of the broker jungle:  Either provide clearly superior value, or lose clients to a broker who does.

Brokers spend plenty of time and money cultivating clients and providing a personal touch to the trading experience. However, in these days of HFT, a broker’s technical capability is often outweighed by personal charm and salesmanship.

So, traders stay enthralled longer than they should. Unfortunately, profits can suffer when traders are more focused on personalities than pips.

Stay flexible, stay a winner

Still, it doesn’t have to be that way. Traders can have the best of all worlds as long as they stay flexible and don’t become married to any single broker. By using a neutral, third-party trading platform like Marketcetera, traders can pick and choose among competing brokers.

When using a variety of strategies and systems, instead of tailoring the strategy to fit a particular broker, traders can now reach across broker company lines in order to fit the broker to the strategy.

From the perspectives of both institutional traders and independent “prop traders,” flexibility is the key to success. A good third-party platform that offers technical flexibility along with high liquidity and low latency is a sure winner.

The grass is always greener on the other side…. Go there

A trader should be loyal to profits, not to brokers. That’s because trading success depends on harvesting profits wherever they may be found. But, if you’re tied to a single broker then it’s hard to explore new opportunities.

In contrast, when a trader is empowered by Marketcetera’s automatic trading platform, based on open-source code, the grass really is “always greener on the other side.” Traders are free to roam wherever they wish:  Across brokers, across markets, and even across liquidity and funding sources.

With enough flexibility, you can reach anywhere

If you’ve been trading through a single broker with a single platform, it’s time to loosen up and reach for bigger profits. A good way to start is by exploring the possibilities available through the Marketcetera Automated Trading Platform (MATP).

Once you’re armed with MATP and its related DARE and Nexus tools, you’ll be flexible enough to have complete control over your trading world.

To learn more about the value of flexibility, just contact Marketcetera.

The Future of Trading – Both Faster and Smarter

These days, high-frequency trading (HFT) is a controversial topic in economic discussions. Critics bemoan the proliferation of high-speed trading. They claim it destabilizes global financial systems, while proponents say that HFT is a natural progression in the development of new financial-trading tools.

As algorithmic trading continues to advance, the line between human trading and machine trading is becoming blurred. It’s difficult to guess the upper limits for speed in trading. Yet, the next wave of evolution in technology for trading is likely to be the expanded use of artificial intelligence (AI) to build trading systems which trade smarter instead of merely faster. Continue reading

Awaiting a Truly Democratic Trading Platform

Democratizing traders’ access to algorithmic trading systems serves everyone’s interests. For the sake of robust, sustainable global economic growth, it’s critically important that quantitative traders have access to affordable high-performance algorithmic trading systems, regardless of their geographic location or their amount of assets under management.

Democracy is often defined as a form of government in which supreme power is vested entirely in the people, and directly exercised by them in a free, open system. By extension, a democratic trading platform is one in which the aggregate decisions of all traders directly influence the marketplace, without being constrained by proprietary software owned by special interests or market gatekeepers.

Algorithmic trading systems have the power to truly democratize the world’s marketplaces. Empowered by high-performance algorithmic trading tools, individual traders can help keep marketplaces, institutions and governments “honest” by providing them with economic feedback in the form of lightning-fast trades executed in response to real-time events. Before considering how algorithmic trading software can help save the world, let’s first consider the evolution of software in general, and its implications for the global economy.

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One Ring To Rule Them All

One Ring to rule them all,
One Ring to find them,
One Ring to bring them all
and in the darkness bind them.

J.R.R. Tolkien, The Fellowship of the Ring, 1954, Chapter 2

In the fantasy world crafted by the late author J.R.R. Tolkien, the key to winning the game (and surviving those ever-present forces of doom) was to be found in a set of magical powers flowing from a single source which seemed to be always hidden just beyond reach. The only successful solution would result from uniting the far-flung pieces of the puzzle into a single all-powerful tool.

In the trading world, we used to think that this “One Ring” was the technology itself, although the reality is that the trader himself is always the key to success. We mistakenly chased technology for its own sake, and in doing so we lost sight of the trader. The role of technology is not to create success, but rather to empower the trader to find his own success, by providing the control needed to unite disparate tools into a complete synergistic system which executes his will.

Today’s quant traders face a dilemma: In spite of having access to millisecond trading platforms and a wide range of technological wizardry which would have seemed unbelievable as recently as a few years ago, technology-based solutions for trading involve multiple, dissimilar elements…. Traders are still faced with the need to patch together a mishmash of tools in order to build and profitably use their own personalized trading systems.

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Meet the Marketcetera Community!

One of the questions I am asked most often is who makes up our open source community?

Usually the person asking the question is a new member of the community that has set out to build a new trading platform for their firm. They have selected Marketcetera as the core of this new platform in an effort to accelerate their time to market and are often looking to collaborate with other community members and take advantage of existing best practices.

As part of this effort to better connect community members, we have surveyed new registrants to understand their composition and priorities. If you contact me directly I’d be pleased to share the complete results, but there are a few points that I would like to highlight.

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Evolving Toward Simplicity

The HFT pursuit has triggered a technology arms race across our industry with tremendous capital (human and financial) expended chasing elusive microseconds.

In the midst of this full-throttle pursuit, it is worth considering some of the fundamental assumptions of great software design. One of the most basic (and often over-looked) questions is whether to pursue a proprietary system or opt for an open source approach.

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The Elusive Definition of High Frequency Trading Pt. II

Why all the Fuss?

High frequency trading has gotten a lot of media attention over the past few days, much of which most of which has been negative.  This is due to a couple of factors:

  1. The down market has created disgruntled (and vocal) concerned citizens wary of the finance industry.  That resentment and distrust has surfaced in the mainstream media in which bailout money, AIG, Lehman Brothers and the finance industry are lumped together and demonized as an amorphous, sinister entity out to trample the rights of the common person.  High frequency, in the eyes of the layman, is representative of this.
  2. People don’t really understand high frequency trading.  In many instances, it’s wrongfully lumped together with practices like flash orders or short selling.  The real danger with this lack of understanding is that it leads to uninformed regulation. This perpetuates the lopsidedness of the market and results in regulations created to control a few being extended to many. One size cannot fit all in a regulatory landscape.

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The Elusive Definition of High Frequency Trading Pt. I

What is High Frequency Trading?

Ask a dozen traders and you’ll get a dozen different answers.  Some say it involves program trading, stat arb and quantitative modeling coupled with extremely low latency and high frequency trade execution. Others say it is where alpha generation is purely based on speed.

Quants define it as “exceptional speed + algorithms or automatic strategies.” But, who gets to determine whether your speed is “exceptional” or if you are using enough algorithms to make the cut?

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