Advanced Trading Analytics: A Look at TradeMap Execution Strategy Designer

When a buy-side trader turns on the execution management system in the morning, the blotter could have a large number of orders clamoring for attention.  Determining a path for each order can be time consuming. Each order has different characteristics and can be traded in different ways.

Now traders can visually design strategies in an efficient and systematic way without writing code.

Mapping Your Trades

To capture the trader’s decision making process, FlexTrade has developed TradeMap, an Execution Strategy Designer. TradeMap is a FlexEdge advanced analytics application allowing the buy-side to build a trading strategy based on each stock’s unique characteristics. Through a sequence of clicks, traders can quickly chart a path for each name in the portfolio. There are two distinct ways to trade with TradeMap:

• First, the trader can construct a strategy around a sequence of destinations, including dark pools, algorithms, DMA and cash equity desks. Each strategy can consist of one or more broker-neutral destinations available via the FlexTRADER EMS.
• Second, the trader can easily set up “priority rules” that will adjust the strategy based on current market conditions, portfolio characteristics and analytics.

For example, a trader may first go to passive dark pools, such as Liquidnet, POSIT and BlockCross.

If there is no liquidity in those pools, the trader can then switch to a different strategy, perhaps concurrently accessing more aggressive venues.  For instance, the order can be sent to VWAP or volume participation algorithms, or go to a slightly more aggressive dark pool while the order remains exposed to passive dark pools.  After selecting the logic for a strategy, the trader can then set alerts, which monitor the liquidity, slippage and other factors.

“This helps to build your workflow based on the characteristics of the stock prior to trading, and it then lets you systematically modify the destinations or algo parameters throughout the day based on  your rules, current market conditions and order status,” explains Peter Mulieri, Senior Vice President, Execution Strategies at FlexTrade Systems. For example, each stock at a point of time may require a different algo or liquidity destination depending on the market conditions and characteristics of each security. TradeMap answers the question of “where do I go and how do I trade it, and how am I adjusting my orders in real-time,” adds Mulieri.

Transparency and Control

Traders have full control and discretion over selecting the venues, and they can design the rules as opposed to relying on a black box.

Using TradeMap makes the execution performance more consistent, measurable and repeatable. “It saves you time during the day to concentrate on more difficult orders,” says Mulieri. “You can’t watch every order; things are happening simultaneously; and the market is so fast. You want to be able to adjust to market conditions as they change,” says Mulieri.  TradeMap cuts down on extra keystrokes within the EMS and gives the trader more control. “You don’t miss opportunities,” he adds.

How It Works

“If I start at the top with a large list of names — and they’re all slightly different — TradeMap allows me to apply a uniform approach to the way I’ll be looking at them. For instance, I could look at a high percent of ADV name, begin working the orders passively and then reassess,” Mulieri explains.

The strategies can be configured to send, cancel or replace to individual venues or in parallel based on timing parameters and a set of ‘if/then or else’ rules or triggers. The ‘if, then else logic’ can use any data analytic available within the FlexTRADER EMS.

It enables the trader to ‘map out’ a series of steps based on characteristics of the order, such as the spread, sector, slippage, and portfolio concentration and/or average daily volume. And, as the day unfolds, the trader is able to modify the strategy based on the current market conditions, such as price move, liquidity and volatility.  If there is urgency to fill an order, it can be sent to a cash equity desk and aggressive algo, or any destination that is integrated into the FlexTRADER EMS.

Not every order needs the trader’s attention. “It creates a consistent workflow for what you normally do, but you can concentrate on working the more difficult orders and then reassess,” says Mulieri.

When the trader looks at an order list, he or she has to determine what to do with each order.  “It’s not always the same,” says Mulieri.   “If I have a large order, I want to see what’s out there in passive venues.”

The trader can also look at the different stages of the day in terms of sequencing and timing. If a certain percentage of the order has to get executed during the day, the trader can try out different venues in a sequential fashion and make decisions based on how much liquidity is there.

Alternatively, TradeMap enables the trader to define ‘priority rules’ based on parameters such as slippage.  If a stock were to move away from the trader, rules can be set to match the trader’s new priorities.

Setting Priorities and TCA

Traders can define the priority rules as opposed to relying on a black box. With the benefit of FlexTCA, they can use pre-and post-trade analytics to measure the execution costs. TCA enables evaluation of the strategies so that the trader can adjust the strategies and improve performance. “It’s a feedback loop,” says Mulieri, explaining that a trader can use the history of the rules that were fired; TCA to help modify the rules; and the strategy to improve them going forward.

The priority rules are the ones that allow the trader to switch back-and-forth between destinations. If slippage is occurring in a name and the stock is moving away from the trader, the logic can be selected to pause or cancel the strategy. If the price is moving in the trader’s favor, then he may want to get the entire order done by routing to a cash equity desk.

“The idea is to get the best performance by avoiding adverse price movements and being able to tap into liquidity when it is available,” emphasizes Mulieri.

Head traders can structure similar orders in a more efficient way and receive alerts when the price is moving away. If someone is monitoring 100 orders and the percentage of average daily volume has moved, the trader gets an alert.

Strategy Selector

Once the strategies have been developed, the trader can use TradeMap’s Strategy Selector feature to assign names or groups of stocks to specific strategies based on security liquidity characteristics, volatility   and portfolio manager instructions.

Through the entire process, traders maintain full control and discretion over the strategies. “It’s not going to replace them. It’s giving them more electronic tools to structure their environment,” says Mulieri. “They can be more uniform and consistent in the application of their trading skills.”

For more information about TradeMap Execution Strategy Designer and its integration with your system, please contact us at sales@flextrade.com.