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.

Long ago

Granted, even though the live, full-service brokers of yesteryear touted “one phone call does it all” trading, such platforms never quite produced the winning results that most individual traders were hoping for. In fact, many such brokers were merely “hand-holders” and salesmen: They were always ready to take orders, tout their favorite in-house picks, and commiserate about a trader’s losses or help celebrate his gains, yet they never afforded an average trader the degree of comprehensive control which he so desperately craved, and which traders continue to want today.

Even the best technologies alone are never enough for success

Spinning the clock forward a bit, the heyday of E-Trade and other online discount brokerages seemed to herald the beginning of a new era in which technology-empowered day-traders could finally grip control over their own fates, if only they were smart enough to do their homework. During those exciting times before the stock market crash of 2002, it seemed as if savvy researchers could truly beat the market by finding hidden gems and exploiting market inefficiencies through the power of online trading-technology tools, including real-time charts, browser-based trading platforms, and lightning-fast electronic order executions. Back then, it seemed as if technology had boosted traders’ capabilities beyond the limitations of the previous generation’s live brokers and open-outcry trading pits.

Yet, there was still something missing – Individual traders remained one step behind their brokers, now mostly electronic, who likewise used those same new technologies to maintain an advantage over traders. By being privy to an order book showing the bigger picture of order flow aggregated from numerous sources, brokers enjoyed the luxury of synthetically stepping ahead of independent traders, who were still the last ones to know about market moves.

Traders need one technology to unite and manage other technologies

Even though traders felt more empowered when sitting in their trading rooms watching CNN, surrounded by their big-screen monitors and fast computers, they were still just specks of dust floating in the eyes of the institutional behemoths in the marketplace, whose activities continued to dictate price movements. Often, day-traders could scalp the morsels of price gains left behind by slow-moving giants, but just as often they were crushed by those same giants when prices moved past their puny stop-loss points…. Big technology wasn’t enough to win in a big marketplace. Traders were beginning to realize that they needed an overarching technology solution – A technology to control and manage all the other technological bits and pieces.

High frequency trading is the new magic

With the HFT tools available to individual traders today, things are different…. or are they? It seems clear that recent new trading technologies better suit the independent trader, and the tools available today seem to disprove an earlier, outdated notion that in order to win a trader must adapt himself to the trading technology; nowadays, it’s clearly the other way around. Still, something is missing.

Traders today increasingly insist on more flexibility and above all, more choices. They want to trade multiple asset classes across multiple markets globally, and they want to have the choice of writing their own algorithms, using their own expert advisors, or relying on broker-provided algos. And, the new generation of traders is also choosy about order routing – They demand the flexibility to route orders through single brokers or multiple brokers or exchanges of their own choice.

One Ring

Traders want to have the power to accomplish all these formerly-magical tasks through a single, intuitive platform instead of using a patchwork of trading tools and technologies. In essence, the issue is traders’ desire for control over their individual destinies – If armed with a single, powerful point of trading control, perhaps they could enjoy more winning trades, or more easily accept the heartbreaking losses which occasionally result from their own mistakes…. If only they could possess a single, powerful and comprehensive trading tool…. the much-sought One Ring.

So, now that individual traders have nearly the same capability for high-frequency trading as institutional traders, what’s the next step in the evolution of trading? Will traders themselves ever truly be the “one ring that rules them all” through a comprehensive trading platform offering personalized total control for each individual trader? Or, will traders always be stuck with an awkward box of tools with which to fight their battles?

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