Financial Trading System Development In Excel: How To Do It Right
| 07:41:00 |
Are you considering how to implement a financial trading system for yourself or your firm? There are a tremendous number of places to start, but how do you sort it all out? Most importantly, what are the key considerations to ensure you do it right and end up with a solid system that doesn't waste lots of time and money?
One of the main challenges when buying or building a financial trading system is the sheer number of choices. Trading software ranges from cheap "every man" applications and shareware to full-blooded enterprise systems designed for the largest banks and hedge funds. So the first question is "where do I fit in the range of size and sophistication?" This helps define the features you need, the money you will spend, and the vendors you will buy from...or build if you like that path.
Individuals, family offices and small trading firms have a wide variety of strategies to consider. These users don't necessarily require a financial trading system with every whiz-bang feature ever invented. In fact, fewer features, but ones that are specific to your trading strategies, typically outperform large, complex systems. This is not just because of the cost -- fewer features reduces "tinkering" and allows the trader to focus on his or her strategy rather than electronic distractions that undermine discipline. That being said, the ability to implement sophisticated if-then rules and contingent orders is critical to keep up with market variations. The ability to create and manage multiple strategies easily is a mandatory feature. Configurable components provide flexibility. Smaller firms and individual traders also appreciate highly transparent rules and rule builder features.
The financial trading system components to consider are the strategy creator, code, blotter, data manager, reporting, order management and back test tool. Other areas to consider are risk management and interfaces to your risk, accounting and back office trade processing systems. These are often provided by dedicated software platforms or SaaS technology services. Your execution broker comes into play here, and perhaps a third party service provider for things like end of day fund accounting and valuations.
Microsoft Excel is one of the most-used applications for this purpose. Programming trading strategies directly into Excel with VBA code or formulas is achievable with a limited amount of training. A typical trader can learn to do this fairly easily. User controls such as buttons, dropdowns, data entry fields, charts, etc. can be added in a way that mimics the visuals and behavior of more expensive software platforms. You can automatically import market data (prices, volume, volatility...) for use with technical indicators. Basic if-then rules, with statements and loops can be used to create elaborate or simple strategies. Excel's statistical calculations are a great add-on. Sophisticated analysis can be done before and after the trade. These are why Excel is so widely used by Tier 1 traders, despite the fact they have the most elaborate trading systems available to them.
Trade execution in a financial trading system is best left to dedicated broker systems, either retail or prime broker. In the case of a corporate treasury, this may be a sell-side investment bank's online system, or even direct order entry into electronic markets, ECNs, dark pools and other liquidity centers. Typically, this is accomplished by dedicated order management systems (OMS) with accessible APIs and a wide range of order types. There is really no point trying to use anything else.
Market data management, position management, profit and loss analysis, and risk management are separate specialty areas where you can buy different components and integrate them, or buy a complete middle or back office system to handle. Market data management requires specialized infrastructure to handle large volumes and massive speed requirements. Positions, P&L, risk, and accounting all rely on complex computations and are best handled together.
As you can see, there are lots of considerations in the trading technology area. Hopefully this helps you put together the best financial trading system for you.
One of the main challenges when buying or building a financial trading system is the sheer number of choices. Trading software ranges from cheap "every man" applications and shareware to full-blooded enterprise systems designed for the largest banks and hedge funds. So the first question is "where do I fit in the range of size and sophistication?" This helps define the features you need, the money you will spend, and the vendors you will buy from...or build if you like that path.
Individuals, family offices and small trading firms have a wide variety of strategies to consider. These users don't necessarily require a financial trading system with every whiz-bang feature ever invented. In fact, fewer features, but ones that are specific to your trading strategies, typically outperform large, complex systems. This is not just because of the cost -- fewer features reduces "tinkering" and allows the trader to focus on his or her strategy rather than electronic distractions that undermine discipline. That being said, the ability to implement sophisticated if-then rules and contingent orders is critical to keep up with market variations. The ability to create and manage multiple strategies easily is a mandatory feature. Configurable components provide flexibility. Smaller firms and individual traders also appreciate highly transparent rules and rule builder features.
The financial trading system components to consider are the strategy creator, code, blotter, data manager, reporting, order management and back test tool. Other areas to consider are risk management and interfaces to your risk, accounting and back office trade processing systems. These are often provided by dedicated software platforms or SaaS technology services. Your execution broker comes into play here, and perhaps a third party service provider for things like end of day fund accounting and valuations.
Microsoft Excel is one of the most-used applications for this purpose. Programming trading strategies directly into Excel with VBA code or formulas is achievable with a limited amount of training. A typical trader can learn to do this fairly easily. User controls such as buttons, dropdowns, data entry fields, charts, etc. can be added in a way that mimics the visuals and behavior of more expensive software platforms. You can automatically import market data (prices, volume, volatility...) for use with technical indicators. Basic if-then rules, with statements and loops can be used to create elaborate or simple strategies. Excel's statistical calculations are a great add-on. Sophisticated analysis can be done before and after the trade. These are why Excel is so widely used by Tier 1 traders, despite the fact they have the most elaborate trading systems available to them.
Trade execution in a financial trading system is best left to dedicated broker systems, either retail or prime broker. In the case of a corporate treasury, this may be a sell-side investment bank's online system, or even direct order entry into electronic markets, ECNs, dark pools and other liquidity centers. Typically, this is accomplished by dedicated order management systems (OMS) with accessible APIs and a wide range of order types. There is really no point trying to use anything else.
Market data management, position management, profit and loss analysis, and risk management are separate specialty areas where you can buy different components and integrate them, or buy a complete middle or back office system to handle. Market data management requires specialized infrastructure to handle large volumes and massive speed requirements. Positions, P&L, risk, and accounting all rely on complex computations and are best handled together.
As you can see, there are lots of considerations in the trading technology area. Hopefully this helps you put together the best financial trading system for you.
About the Author:
A top quality financial trading system uses special tool kits and components designed for the purpose. Learn more about these components and how to implement them in Excel at ExcelTradingModels.
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