Automated Trader Magazine Issue 27 Q4 2012
As a journalist, I’m always happy to know that my articles are being read. I personally prefer the readers to be human, but I’ll settle for machines. Machine-readable news is taking the market by storm, so we wanted to know what all the fuss was about. One thing I was surprised to learn was that the concept was being written about as early as the 1950s. Back then, Natural Language Processing was a distant vision and computers were too puny to make real headway. Find out just how far the industry has come in figuring out how to read billions of articles, blogs and tweets on page 22. We also investigate the nuts and bolts of unstructured data on page 34. And you can learn what CEP specialist StreamBase thinks about where the technology is headed in Tech’s Message on page 38.
In the second of our issues that looks at the BRICs, we travel to China to feast on crispy fried duck and algorithmic trading insights. China is well known for fostering a generation of some of the smartest, hardest-working people on the planet. We talk to one of them, Charles Huang, in Me and My Machine on
page 80. He’s one of the few investors on the mainland who has incorporated automation into his trading methods. Mary-Ellen Barker writes about the outlook for more companies to use algorithmic strategies in China (page 70) and also reports on the vibrant scene in Hong Kong (page 76).
From the throngs of China to the backwoods of Pennsylvania, where Mike Dever is the subject of First Person on page 14. At a renovated old mill on a scenic country road, this automation pioneer trades everything from orange juice to lumber. A new feature in this edition: the first of our “Dequantification” columns, where we check in on the academic community to discover what new research is likely to change the way you do business. Learn about the stochastic control approach to pairs trading on page 98.
Many exchanges are content to focus on one asset class. Not LMAX. This fast- growing exchange tells Andy Webb all about the meaning of agility on page 56. Our thirst for knowledge also gets slaked on page 92 in Anatomy of an Algo, which chronicles the fate of an algo that sells shares in a famous brewing company. And there’s the always-enlightening Software Review, which looks at ILNumerics and runs the numbers on page 102.
Finally, are you eager to slice a few more milliseconds off your round trip? Then you must read James FitzGerald’s overview of the market’s new love affair with microwave technology on page 48. Before you start humming that Dire Straits song (“Fibre ain’t workin’?...That’s the way you do it....Money for nothin’ and your ticks for free...We gotta install these microwave dishes...”) just remember, this stuff does actually cost money.
- What forces will shape the markets?Automated Trader launches its latest industry-wide survey What types of trading models are in vogue? Which technologies will win the day? Where is liquidity on the rise? How will the industry cope with the approaching regulatory tsunami?
- From rural Pennsylvania, Brandywine takes on the worldThe old mill on this scenic New England road looks like something straight out of a Norman Rockwell painting. But make no mistake, there's nothing old-fashioned about this place. It's where Mike Dever runs the newly revived Brandywine Asset Management. He began trading more than 30 years ago before spending a decade in the dot com world. Now, back in the markets full time, Mike tells Andy Webb about his twin penchants for diversity and automation.
- Voracious readers: The changing world of unstructured dataReckon you're a fast reader? There's a reasonable chance your company has machines that have already read every single word in this article, long before you could lay eyes on it. If that's the case, you're currently in the minority among market participants - but you may not be for long. Signs point to a steady climb in the adoption of systems that allow vast amounts of news and social data to be consumed instantly. As the technology has advanced, the market has grown more comfortable embracing it. Adam Cox surveys the unstructured data landscape and asks what's in store.
- The Front Line Some views from users of sentiment dataThere's little question that understanding sentiment indicators is a hot topic. Automated Trader got a bird's eye view when it moderated one of a series of panel discussions at a recent Battle of the Quants in London. Here is what experts and investors in panels at that event said about using machines to determine sentiment.
- The Year of Big Data: The challenges of putting trillions of odd-shaped pegs into neat little holesThe volume of digital content is forecast to surge to a staggering 2.7 zettabytes in 2012. How big is that? One of those is 10 to the 21st power. We're talking billions and billions of terabytes. What's more, at least 90 percent of that will be unstructured, made up of enormous numbers of files based on social media or web-enabled processes. How do companies turn this information soup into something palatable? The short answer is, in lots of ways. Adam Cox reports.
- Is ABC really as easy as 123? The world of NLP, according to StreamBaseSince this edition of Automated Trader is exploring the fast-evolving world of unstructured data, we decided to spend some time with complex event processing group StreamBase. Adam Cox asks their chief technology officer, Richard Tibbetts, how far the industry has come in adopting Natural Language Processing techniques in algorithms, and what the future holds.
- A Tech Strategy for Multiple FuturesLower volumes and margins inevitably pushed technology cost reductions up the agenda post-2008. But achieving these alone is no longer enough. As Stanley Young, CEO of Enterprise Products and Solutions at Bloomberg explains, the firms that will survive and thrive in the future are those whose technology infrastructure also delivers the flexibility and performance to address business risks and challenges that are continually changing.
- Rooftop Parties: How extremely small waves are making very big waves in the marketsFibre optic networks are far and away the dominant force in financial communications. But difficult technical challenges with microwave technology have been overcome and routes that are straighter and faster than ever before are now possible. James FitzGerald talks to some of the companies that are truly in the high frequency business.
- LMAX Exchange: Agile Challenge to the Status QuoLMAX Exchange is an exponent of the agile development methodology, but does that agility also extend to the business as a whole? In this issue's Exchange Views, David Mercer, CEO, Andy Phillips, Head of Systems and Mike Barker, Head of Software, describe how LMAX Exchange has evolved both rapidly and sometimes in unexpected directions over the five years since its inception.
- LMAX Exchange Open Source and the Disruptor ProjectOpen Source and the Disruptor Project
- Adaptive Numbers - Accelerating Algorithmic Prototyping to ProductionToday's financial markets are a classic example of an environment where adaptation is essential for viability. Apart from challenging conventional 'single market/discipline/model' thinking, this situation also highlights the need to accelerate the transition from prototype to production. While this transition has historically proven a major deployment speed bump, as Steve Wilcockson - Industry Manager for Financial Services at MathWorks - explains, the situation is improving.
- Enter the dragon. How bleak trading in China heralds a bigger focus on algosIt's been a grim year for human traders in China, as volumes and prices on Chinese exchanges have fallen to multi-year lows. Yet the challenging environment is also driving firms to look for efficiencies - and that spells an increased focus on algorithmic trading. The use of algos may be starting from a very low base, and the market may have its share of regulatory constraints. But there are plenty of signs that automation will only increase as traders grow ever more sophisticated. Mary-Ellen Barker reports.
- Hong Kong does the math. Focus on cost + infrastructure investments = more algo tradingIf mainland Chinese markets are in the toddler phase when it comes to algorithmic trading, Hong Kong markets look fairly grown-up. But industry executives say they still have plenty of scope to get bigger, faster and stronger.
- Charles Huang: One in a billionHe was at university by the age of 14. A decade later he became the youngest-ever senior vice president at Prudential Securities. Skip ahead a few years and he was buying a Chinese commodities exchange, soon to be transformed into a high-tech trading operation. Charles Huang is clearly someone who knows how to do things quickly. Now, as chief executive of Bond Trust, he is staking out new territory on the Chinese mainland as one of the few local investment companies to employ algorithmic trading techniques. Adam Cox hears all about his remarkable story and what he thinks of the trading scene in China.
- China Rising: Innovation and growth in its marketsChina is already renowned for the prowess of its commercial trade, but there are already signs that trade in its financial markets could soon become as prominent. Steffen Gemuenden, CEO of RTS Realtime Systems Group, explains how innovation and growth in Chinese markets make them an almost mandatory element in any trading professional's market mix.
- Anatomy of an Algo: Beer NecessitiesWhen an unexpected news event lands right in the middle of a high ADV trade, most execution algorithms struggle to adapt strategy to the sudden change of circumstances. But as Brian Schwieger, head of EMEA Execution Services Sales and James Wardle, Vice President, Execution Services at Bank of America Merrill Lynch explain in this example trade from the brewing industry, there are exceptions to every rule.
- Information, Liquidity and the Center of OpportunityFor many, latency was once the be-all and end-all of electronic trading. But as globalization and the whipsaw of quantitative easing drives a tighter coupling between debt and currency markets around the world, there's a more important directive emerging for market participants - access to information, and lots of it. As John Knuff, General Manager of Equinix Financial Services, explains, information is what begets liquidity - and you need high-quality information in a timely manner in order to manage risk and trade smarter.
- Dequantification: Optimal Balance PairsA common problem encountered by Automated Trader readers who use strategies such as pairs trading is determining the optimal ratio of securities to buy/sell when executing a trade. Automated Trader talks to Agnes Tourin of the Department of Finance and Risk Engineering at the Polytechnic Institute of NYU about how the stochastic control approach proposed in a recent paper1 she co-authored may offer a possible solution.
- Software Review: ILNumerics - faster numbersFor the majority of Automated Trader readers, faster code is implicitly better code. When conducting research, anything that reduces the execution time of the often vast simulations or optimisations being undertaken is a 'good thing'. Even for those not at the cutting edge of HFT, the same applies to the execution time of code in live trading. Which is why in this issue's software review we're taking a quick look at the ILNumerics maths library.
- Peek ahead: Dazed by dataPeek Ahead grapples with a variety of topics, from sarcasm to cheese fondue to swords. For good measure, we've thrown in a handy guide to some of those troublesome acronyms.