MetaTrader quickly dominated the forex market as the platform of choice for retail traders. Its easy to use interface and wide availability across multiple brokers made it an instant hit. Shaun Overton examines the ease with which traders can use Expert Advisors to facilitate their trading, offering a viable alternative to traders that are unable to trade manually with consistent positive results.
Mirror trading is a relatively new method in automated trading that enables traders to ‘mirror’ strategies developed by experienced Forex traders which can help them improve their trading performance and meet their investment objectives. Greg Hay, co founder of Tradency, a company offering Mirror trading, outlines how by using the mirror trading technology, traders can copy or track trades from 3rd party traders, which can be system developers, manual traders or financial institutions.
Modest barriers to entry have made automated trading more popular than ever, and the explosion of pre-packaged automated trading systems have particularly flourished through FX markets. What was once the playground of only the most sophisticated speculators is now accessible to anyone with an internet connection and a modest-sized trading account.
The quant bug has finally infected the FX market. The asset class originally known for its slow adoption of technology and small concentration of major players – primarily central banks and government institutions – has exploded, attracting a wide range of quantitative hedge funds, commodities trading advisors (CTAs) and other financial institutions ready to take on this growing market. In fact, every quant firm interviewed for a recent Aite Group study stated that they planned to add new instruments and geographies in 2010, and that FX was one of the two most popular additions. This statistic confirms that as liquidity within the FX market increases, so does the number of traders looking to capitalize on new opportunities. With trillions of U.S. dollars traded daily and more than US$175 trillion placed with FX providers in 2009, this trend appears to have the staying power necessary to transform the FX market.
The financial crisis of the past two years has led to dramatic changes in the competitive and regulatory landscape of Wall Street. Negative perception, more stringent capital requirements as well as new regulation, such as the Dodd-Frank Wall Street Reform Act, has made proprietary trading less attractive to banks. Several banks have scaled back on proprietary trading while others have announced that they are exploring moving their proprietary trading into a separate hedge fund structure. Furthermore, changes to bank compensation schemes, such as a higher proportion in deferred compensation and the introduction of claw back mechanisms have made it less attractive to work at a major bank. As a result, we have seen an exodus of high frequency trading (HFT) teams out of banks. Some teams are joining hedge funds or proprietary trading firms while others are choosing to go out on their own and create their own high frequency trading firm. In a previous article1 we described the challenges of starting a HFT firm. Here we will focus on incubators and the benefits they provide to start-up HFT firms.