Opening Cross: ‘Connect’ With Your Clients As Well As Their Algos

Long ago, the barrier to being an independent trader was money—the capital required to buy a seat on an exchange. As exchanges became electronic, the barrier became not just money, but also the technology required to access the exchange’s data (and, of course, the money required to purchase that technology and data), and trading arcades sprung up where former floor traders could lease a fully-functional trading position, complete with data, trading systems and dealerboards.

Now, this level of technology and connectivity is readily available to individual investors, who brokers are tripping over themselves to offer all-singing, all-dancing terminals with content and tools once reserved exclusively for those on bank trading floors, reflecting not just a greater sophistication among today’s investors, but also that—unimpressed by their asset managers’ ability to deliver returns during the financial crisis—investors figure they can do just as good a job themselves, given the right data and tools.

Today, there are arguably fewer barriers than ever to semi-professional and “active” retail traders accessing the global markets. In fact, one of the few remaining “barriers” to individuals, some say, is the proliferation of high-frequency trading, skewing the playing field and making it hard for the average trader to successfully execute strategies. But with the number of firms playing in this space reportedly declining, and with the Wall Street brain trust looking for new sources of alpha that are less speed-dependent (and hence less dependent on expensive technology infrastructures and niche low-latency connectivity services), this may open up opportunities for other types of traders, and swing the balance of power in the immediate future away from black-box algorithms to humans harnessing good, old-fashioned technical analysis and fundamental research. In fact some new trading venues—such as Canada’s Aequitas Exchange and the Australia-based Asia-Pacific Stock Exchange—specifically intend to exclude HFT flow.

Hence, the tools available to these traders are of utmost importance, with traders now able to get more for their money. CQG, once the domain of chart-heavy commodities and derivatives traders, is rolling out QTrader, a low-end data and trading platform to target traders for whom the vendor’s flagship Integrated Client terminal would be out of reach.

And to target those without access to the proprietary instant messaging tools that accompany premium market data terminals, Thomson Reuters is launching a new function that supports communication between regular email systems and any instant messaging platform, so a user of Thomson Reuters’ Eikon desktop could IM a non-Eikon user, and have that message show up in their email, potentially bypassing the barrier of exclusive, proprietary IM platforms.

Although technology can still present a barrier, the playing field is slowly leveling. For example, in addition to adding trading capabilities to its NetStation workstation—so brokers can white-label the platform and offer the vendor’s analytics to clients alongside trading functions—Danish data and charting platform vendor NetDania is also planning to roll out risk management and algorithmic trading tools, to allow users to automate some of their trade flow.

Meanwhile, SuperDerivatives’ DGX desktop, which began life as a low-end terminal, has received such demand from clients for an accompanying feed of data to power other applications with consistent data. SuperDerivatives officials say the feed reflects client demand for more ways to reduce their costs. However, one could also argue that this is a case of next-generation desktops driving enterprise feed developments. And if the need for separate ultra-low-latency infrastructures declines and more trade flow is generated from retail and active trader terminals, we might see a distinct shift in firms’ data infrastructure decisions, as well as how they connect with clients—and indeed, whether those clients are man or machine.