Saturday 6 June 2015

Financial Trading System Development In Excel: How To Do It Right

By Arthur Juneau


Are you interested in a financial trading system for yourself or your investment business? There are many starting points. There are several important considerations to ensure it gets done right and you arrive at a strong system.

The first challenge is laying out what you want to achieve on the trading side versus position-keeping, accounting and trade processing. There are a plethora of software platforms available from those less than $200 to massive systems used by global financial institutions. At the beginning you should ask "what do we really need versus want in terms of trader tools?" The answer will help guide the decision-making process as you look at each component of the trader's tool chest.

A smaller firm of 10 traders implementing different strategies doesn't require an elaborate financial trading system designed for a big i-bank. However, your traders are probably sophisticated enough to need real feature -- trading millions in stocks, futures and forex on a daily basis requires the ability to create and manage multiple strategies easily. A firm this size needs something configurable, componentized, transparent and flexible.

The main parts of a financial trading system are the trading strategy builder, watch lists, execution methods, price-volume data module, position tracker, P&L reporting and risk analytics. Depending on your needs, two more components to consider are accounting and an OMS. The boundary between your trading, accounting and order management systems is up to you. You can rely on your broker for much of this.

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.

For smaller firms, trading execution directly in the market with a financial trading system is the responsibility of your broker. At a bank trading desk, orders are typically routed through the bank's OMS for direct execution or sent to electronic markets and liquidity pools. Excel can be integrated via APIs to send a variety of order types.

Building a financial trading system in Excel involves strategy definition, data management, position sizing, P&L reporting, backtesting and a variety of other processes. You can build or integrate third-party components for these functions. Excel can also be used for basic back office trade processing, though there are dedicated systems available which are better at this. Real time market executions require special infrastructure to handle large volumes and low-latency speed -- Excel is less suited to this than software coded in C# or java.

If you're planning to implement a financial trading system, Excel is likely to become a major part of your trading operation. Hopefully, these insights will help make the right decisions for your trading success.




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