FOREX TECHNOLOGY
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scalable capabilities to both the sell-side and the buy-side faster than traditional methodologies for application development.”
From a pure technology perspective, CEP engines and their strategy modelling tools transparently handle many of the mundane yet vitally important tasks to achieve low latency, fault tolerance, broad connectivity and tick capture by leveraging scalable multi-core processors often at times reaching up 24 and 32 cores. Taking a common example, Lovas explains: “Aggregation is a mainstay in electronic FX trading, much of it powered by CEP technology, which easily lends itself to liquidity management across the global/ fragmented FX market.”
It is not uncommon he says for buy-side clients to connect to multiple ECNs and single-bank liquidity providers and manage a vast liquidity pool - not just across a few but often six to ten sources - for alpha- seeking, market making and smart order routing. “Te use of CEP technology scales well to meet this demand, especially in FX where the spot market is the most liquid and highly traded market in the
world. Furthermore, aggregation implies market data and substantial amounts of it. Terefore, a strong complement to a CEP engine is the ability to capture and store market data for back-testing and quant research for those CEP-based strategies -watching trades, profit potential and draw-downs all in real-time.”
Firms looking to leverage CEP should realise, however, that it is an investment in technology they are making. Such technology still requires care as there is a learning curve for IT staff, development and maintenance cycles and releases to manage. “CEP is not a panacea to trading infrastructure,” says Lovas. “It’s just a tool that in skilled hands can be wielded effectively.”
New areas for CEP tools
New areas are opening up in the FX space for the deployment of CEP tools by trading firms. It can be used for automated pricing, market insights for traders and market liquidity analysis, on top of looking into order books to analyse market depth. It has also expanded more recently to cover for real-time position valuation for risk management aspects and limit/exposure monitoring. From FX pricing, market participants often then proceed onto hedging schemes, where intra-day exposure is not that high and risk can be hedged off.
“What is new for us in the FX arena essentially breaks out into three broad categories,” says Dan Hubscher, Industry Marketing Manager (Capital Markets), at Progress Software. “Sell-side facing trading functions of market making, sales and e-commerce; buy-side trading functions of algorithmic trading and alpha seeking; and real-time risk management.”
Real-time risk management is critical for auto- hedging, something which has become a key focus for Progress, says Hubscher. “So, as client orders are received at firms they can automatically be dealt with by CEP - without the need for manual intervention - prior to trades being forwarded to the market. Should the risk profile build up and reach unacceptable levels then the auto hedging feature is initiated and starts to mitigate or even flatten out the position.”
Dan Hubscher
“Applied properly, CEP technology not only enables institutions to ensure greater safety and security but also to trade greater FX volumes and potentially reap higher profitability.”
114 | october 2011 e-FOREX
Tis has historically been handled by firms on an end-of-day or intra-day basis. Now it is becoming more near to real time, says Hubscher. “By using CEP technology, limit management and enforcement of trader positions can be facilitated. Applied properly the technology not only enables institutions to ensure greater safety and security (e.g. limit breaches, fat
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