Need for Speed: Providing real-time information to algorithmic traders

Nov 26, 2010
by Charles Gubert

Light travelling around the Earth’s equator, a house fly’s wing flap and the time taken by the human brain to recognise the emotion on a facial expression – all of these events take milliseconds to occur. However, some of these times pale in comparison to the speeds associated with the ground-breaking real-time financial information technology being offered in the world of high-frequency trading.

Real-time information is a fundamental necessity for algorithmic traders, both in terms of executing trades and ensuring sound risk management. AlphaFlash, Deutsche Börse’s low latency algo news feed delivers more than 150 market moving indicators from around the globe to a variety of algo-trading clients, including hedge funds.

The AlphaFlash programme was developed jointly with Deutsche Börse’s news agency Market News International and Need to Know News, a US company that was acquired by Deutsche Börse in late 2009 as part of its strategy to expand its information offering to algorithmic traders. Need to Know News’s journalists have direct access to government lock up rooms and embargoed releases – the takeover was all part of Deutsche Börse’s aim to integrate financial news and event data into algorithms, as well as providing real-time market data to its clients.

AlphaFlash’s fund manager clients receive macroeconomic real-time data from a variety of sources including national banks, government departments and private organisations. This data includes central bank interest rate decisions, GDPs, housing statistics, employment numbers and CPI figures – all of this critical information will ultimately help algo fund managers in determining their trading activity.

“Our plan was to create a machine readable newsfeed where we could provide data with the shortest possible delay direct from the source to our customers who are operating their algorithm machines,” says Georg Gross (pictured above), head of front office data and analytics at Deutsche Börse. “We provide the macroeconomic data straight from the source. For example, if that happens to be the US Department of Labor, we see the information there and we create a message which is sent directly from that government department to wherever the customer’s algo co-location is. It’s straight from the source to the algo,” adds Gross.

This rapid flow of data enables algo clients to make quick trading decisions. “If certain unemployment data comes in, for example, an algo trader may want to purchase treasury bonds or sell equities depending on the data. These macroeconomic events move the market,” says Clint Rhea, chief operating officer at Need to Know News.

Real-time macroeconomic data also allows fund managers to have real time or near-real time risk management policies in place, according to Rhea. AlphaFlash’s data, he says, can be delivered to traders in milliseconds or even microseconds once an official embargo has been lifted.

“This data reduces risk and helps ensure trades meet compliance,” says Rhea. “If you have a core position in a particular product and a macroeconomic event is going to affect that product, you can trade out of that position, trade around that position or hedge some risk by executing other trades to help mitigate losses,” adds Rhea.

All of this, he says, “happens in the blink of an eye.”

Hedge funds rarely provide specific client feedback to Deutsche Börse – this is understandable as it is sensitive information and no right-minded trader would want to give away their strategies. However, that does not mean Rhea and Gross are working blind when improving or enhancing this software.

“While customers are secretive, they are vocal about new products, ideas and places where we can disseminate and consume data. We see our customers as partners and we build our products around some of their ideas. We have a close relationship with them to improve AlphaFlash,” says Rhea.

Generally, most clients will ask Deutsche Börse for AlphaFlash to provide more data and increase the transmission speeds, he adds. All of their client suggestions, says Rhea, are taken very seriously and the company tries to incorporate them into its technology programmes.

These customers have a variety of options to choose from in regards to AlphaFlash’s services. Rhea says there are multiple packages on offer and clients do not need to buy into all of them simultaneously. Some customers, he says, will prefer to subscribe to a geographical package that is relevant to their trading strategies – therefore, they are charged per data package and per co-location facility. “It’s up to the customer what data package they want and we price it accordingly,” he adds.

Client demand also paved the way for the launch of AlphaFlash Asia-Pacific in November 2010, which joined the existing North American and European services. AlphaFlash Asia Pacific offers hosting solutions in Sydney and Tokyo. A Singapore service is currently in the pipeline and the company is still awaiting client feedback, according to a source close to the deal. Nevertheless, a launch does appear likely at some point next year, the source added.

AlphaFlash may be a news service but it is an incredibly important one especially in this day and age with high-frequency trading and increased real-time risk management coming to the fore. “It’s a challenge but we deliver news indicators as fast as possible while our customers maximise their algorithms to be as fast as possible. We focus on what we’re good at and our clients focus on what their good at – their trades,” concludes Rhea.

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