Traders Are Wrong to Think Speed Guarantees Profits

As technology advances to the point that speed is becoming a commodity, traders must think outside the box to produce out-sized returns, says CQG's Yuriy Shterk.

Low latency. Ultra-low latency. Super-ultra-low latency? This focus on speed of execution is reaching a point of single-minded absurdity. Clearly traders need to be fast, but when everyone is fast, smart traders must go beyond speed to gain an advantage, and this is where things start to get interesting.

Trading technology has advanced to the point where speed is a commodity. The value created from costly incremental improvement in speed is increasingly defined by diminishing returns. How much longer will we obsess over bits of latency before we realize that real advantages are to found by thinking outside of this box?

To produce outsized returns, traders must now consider how to enhance their trading strategies by looking at factors like pattern recognition and statistical or fundamental analysis. Traders must also seek tools with the functional responsiveness to execute optimally in a complex market environment. Moving beyond speed requires smarter trading.

This brings three critical elements to mind: elegant trade system development, smart order execution platforms, and sophisticated order types.

Trading smarter requires developing strategies with more powerful analysis. For a time, disparate connectivity speeds conferred a competitive advantage or disadvantage through variable access to information. Cultivating analytical acumen took a back seat to acquiring low-latency market access. As low-latency connectivity becomes ubiquitous, creative insight will increasingly separate winners and losers. The trader with tools on hand to draw more data from more sources and analyze that data in an innovative manner may deduce correlations and discover opportunity where others see none.

Industry-transcending computational tools are finding a place of serious relevance as traders seek powerful and versatile resources to help look at market data in a fresh light. By combining and recombining mathematical functions and graphical analysis capabilities, traders are able to model data and visualize strategies in novel ways. When an analytical platform integrates these technical methods with sound fundamental strategy, traders can make smarter decisions.

A trading system developed with smarter analysis is incomplete without a smarter execution platform. Tools that allow traders to succeed must react to changing market conditions by working orders according to predefined frameworks and without additional user input to achieve goal outcomes. Freed from order micro-management requirements, traders can concentrate on broader aspects of strategy.

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