Software for finding business opportunities
The article describes a software application from the area of Financial Research Software whose purpose is to look for trade opportunities in financial markets. The software is designed for analysts and portfolio managers, traders with securities, alternative fonds, Fond of Qualified Investors and banks asset management departments. The added value is not only the top-notch sophisticated tools for data analysis, statistics and likelihood but also the fact that the users are given a ready-made workflow of individual trading approaches where anyone can participate in using trade opportunities which are offered in the global financial market.
- What? To seek and use a trade opportunity.
- How? By searching the market according to a specific trading approach, followed by testing of the success on the historical time series.
- When? The results of the functionality are provided to you straight after using the application.
Trading systems behaviour simulation software
Today’s post will take a look at the creation of our team from a different angle. Our team is the developer of a software application (so-called Financial Research Software) which will be used for seeking trade opportunities and their testing. This application can be used by all analysts and portfolio managers, traders with securities, alternative fonds, Fond of Qualified Investors and banks asset management departments. The application does not bring only another tool for effective financial assets management – the main objective of the application is to bring users a workflow which will intuitively guide through the world of professional data analysis, statistics and also likelihood and trading with the aim to take the maximum advantage of trade opportunities which appear in global financial markets.
In the beginning, it is right to realise that looking for trade opportunities and building of trading systems is a very complex process which includes activities from various areas (so-called building blocks). For this reason, to identify and classify individual “building blocks”, we create two categories, horizontal and vertical scaling which can help us understand application operation.
The aim of horizontal scaling is to cluster trade opportunities according to trading approaches. A trading approach is a style (with a little exaggeration – a trade model) by which a trader is trying to reach profit. An example can be the relative values trading approach that can include different types of arbitrages, long/short strategies, pair-trading etc. What all these approaches have in common, is a fact that the trader looks for pairs of financial assets which have some “economical” bond between each other and watches mutual (relative – herby the name relative values) determination of these two assets. In the situation when there is a distortion between relative assessment, the trader finds a trade opportunity (so-called their market) and this situation is used by opening trading positions which benefit from gradual disappearance of this “error” in determination (above mentioned as distortion). This scheme illustrates situations which happened after the fall of Lehman Brothers. There was a situation in the market when, due to global tensions and increased volatility, the prices of CDS on Czech government bonds were higher them prices of CDS on bonds of a Czech company called ČEZ. Looking at this from the theory perspective which says that “risk of one company” = “risk of the country in which the company trades” + “specific risk of the industry/particular company”, this situation proves to be nonsensical. At the moment when more such stress situations appear, also more trade opportunities appear. For the user, the motivation of the relative values module is to find these distortions in the real-time and use trade opportunities which these situations offer. Notice that this schematic description of revealing the process and using the trade opportunity does not include anything about “prediction of the future value”. Traders often concentrate too much on “prediction and forecasting” of the future values, however, going through this extremely difficult discipline is often not necessary, as the mentioned example shows.
The application is constructed in such a way that 1 trading approach = 1 module. Trading approaches used in this application are:
Besides trade opportunities, there is a multitude of other areas (building blocks) which contribute to revealing trade opportunities, creating trading systems or increasing their efficiency. Vertical scaling divides a trading system into building blocks which have a specific role within it. These blocks can be in the intermediate step clustered into areas which technically contribute to the creation and management of trading strategies (trading, portfolio optimisation, statistics and likelihood). The purpose of vertical scaling is to illustrate the continuity of work (= continuity of applications of individual methodical bundles/blocks) when creating a trading system. Blocks which are considered in the application are:
|models describing a particular time series||Statistics characterising dependence behaviour of price and achieved results|
|persistence of time series development|
|approximated time series entropy|
|continuous optimisation of financial assets included in the portfolio to minimise risk/maximize return||Portfolio optimisation|
The paragraphs above show that our team is not focusing only on trading even though it dedicates its efforts on topics close to trading. Execution, position management and output rules are of course an inseparable part of our job but it is actually only one of the areas we deal with. Areas our team deals with are closely connected with creating an application which includes modules for testing and building trading blocks where 1 module = 1 trading approach. Each trading approach can, of course, generate a lot of trading systems (strategies).
By all of this, users (analysts/portfolio managers) are given a robust tool which can help find and use trade opportunities until their termination in order to find a new opportunity as soon as possible. As the saying goes: „strategies die, skills survive“.