TRADING SYSTEMS
bid, offer, mid or ‘last’. Te problem with this, as we have seen, is that there isn’t just one price for any currency pair at a given moment. To use the AUDJPY example, we would
get
very different rates if we plotted just the bid from AUDJPY, or the mid or the offer. Although it’s impossible to know the true high of the day in FX, unless
taking data from every
Figure 5: A variety of currency pairs on the Currenex trading platform, showing a number of potential opportunities to improve execution.
Tese savings may seem small, but to put them in perspective, trading just once a day, saving 0.5pt in 1mio AUDJPY, would represent 126pts over the course of the year or ¥1.26mio. We can therefore see how efficient execution can literally make the difference between a strategy making money and losing money.
BUILDING A ROBUST ENVIRONMENT FROM THE GROUND UP
Data Feeds
We have worked closely with Cambridge Trading Research (CTR) to build a custom solution from the ground up, though there are a wide number of vendors available.
Tere are countless data feeds available to an FX trader, whether from vendors such as Interactive Data, or retail and institutional brokers such as Currenex, EBS, KCG HotSpot and Liquid-X. A common practice is to plot charts using just one price i.e. the
single bank and broker, we know that if the markets were 93.19/21, then we could sell at 93.19 and buy at 93.21. If the market then widened due to time of day, or just prior to a
data release and the market became 93.09/31, it does not mean the low has now become 93.09, nor the high 93.31. It simply means the spread has widened. Terefore when plotting the data, it’s more accurate to use the best(lowest) offer as the low and the best(highest) bid as the high; as we know the market was dealable at those rates, representing ‘true’ prices.
FX
We can take that theory one step further and also calculate the best ‘synthetic’ bids and offers for both the Euro and USD components, from HotSpot, Currenex and Liquid-X; all quoting only actual dealable rates, as opposed to ‘indicative’. This gives us both a very accurate feed, with dealable rates for the highs and lows, plus of course redundancy should one feed go down. Of course the more feeds the better, as long as it doesn’t overload the CPU; the update frequency can be very high, particularly during periods of high volume, which can overload a CPU. This can actually cause Excel to hang, so some feeds may need ‘throttling’ to prevent an excessive amount of updates per second.
All of these calculations could be done within the CTR soſtware, but we have chosen to do these basic calculations in Excel, so that we can physically see and
Figure 6 shows Cambridge Trading Research ‘Excel Data Link’ capturing numerous data feeds and synthetic rates fom two data sources, including Liquid-X, via Excel.
FX TRADER MAGAZINE October - December 2013 33
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