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Tuesday, August 28, 2007

The wonderful world of algorithmic trading

A pair of articles by Will Acworth and Bennett Voyles in Futures Industry Magazine take you to the edge of the wonderful new world of algorithmic trading. A few remarkable things that I found:

  • CME gives you co-location facilities for $6,000 per connection (not counting co-location facility charges), so that you can place your servers closer to the exchange and reduce latency.
  • Eurex's co-location gets you a round-trip of below 10 milliseconds, when compared with 29 milliseconds for a connection in London and 128 milliseconds for a connection from Chicago.
  • ICE is worrying about a new notion of quality of service: no more than 0.1% of the messages should get processed in worse than 50 milliseconds, once a new trading engine is in place.
  • Acworth says: In the old days, a trader might be watching four screens at the same time, commented one speaker. Now its two rows of four, with one row displaying the markets and the other row displaying network conditions.
  • People like the fact that in C++ you get to control when garbage collection is done, so as to avoid unpredictable glitches in performance. (Ugh!)
  • The average order size on the E-mini has dropped to 2 contracts.
  • The biggest systems are nearing a million messages a second.
  • Some firms have started moving functions from software to FPGA in the quest for speed.

A million messages a second is a lot! I remember in the late 1990s, when I worked on the PRISM system (which does the realtime VaR at NSE), our goal was to be able to handle 100 trades/s, which is 200 VaR calculations a second. We were thrilled because the system evolved into exceeding 1000 trades a second.

For those interested in algorithmic trading, you may like to see Chapter 5 of the MIFC report.


  1. There is a new standard called FIX Algorithmic Trading Definition Language (FIXatdl) that meshes really well with colo servers for low latency.

    Check out the details (guests can register free with only a name and valid email): Log in and then go to the live directory where all the participating firm’s xml files reside:

    You can also get full audio and slides from the press event from 7/25. There are also good articles on this new standard in the Technical Analyst and Euromoney.


  2. Why should we let all the big hedge funds and IBs get all the profits? We've created a distributed system that is constantly evolving high-frequency trading rules, distributing them live throughout the trading day, and provides an autotrading interface for a completely hands-free system. It only makes 60% per year so far, but it's always improving its performance with the addition of new users and computer power.

  3. is algo trading allowed in India??

  4. Yes, it is. SEBI had some silly constraints on it. The MIFC report has a full chapter on algorithmic trading. When the new leadership came in, the SEBI constraints were removed. Look around on this blog and you'll find all the pieces.

  5. Are there any retail brokerage firms which allow algo trading or program trading links to retail customers? If yes, one can use either Matlab or Excel to formulate one's own strategy, generate orders and drop them in the program trading basket provided by the brokerage firm. Not sure if traders use some kind of algorithms to scalp the price discrepancy between NSE and BSE or the arbitrage opportunity between spot and futures prices. Any information on the above would be appreciated.


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