Financial Institutions Pinpoint Trading Trajectory with IBM ILOG
11/24/2009
IBM today announced that FlexTrade Systems Inc., the pioneer in broker-neutral, algorithmic trading platforms, is using IBM's Optimization software in the company’s FlexPTS trading solution to help large financial institutions determine the best trading trajectory for their portfolios while minimizing market-impact cost and the risk of underperforming benchmarks.
ebizQ received the following:
In tests, the IBM software delivered the optimal trading schedules in FlexPTS -- one-hundred times faster than alternatives. The technology allows FlexPTS to optimize the trading schedule -– and ensure the highest possible trading returns -– every 15 minutes based on changing market conditions.
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Large investment firms trade assets and shares in high volumes, which can have a major influence on the market price. If they buy or sell assets too quickly, the trading volume can shift the price and erode investor profits. On the other hand, if the investor waits too long to make the trade the price may slip due to market volatility, lowering the yield.
Using IBM ILOG CPLEX software, FlexPTS is helping investment groups determine the best possible time to buy or sell assets and reduce the short-term risk and market impact of the trade to ensure the highest possible return. This capability provides a critical advantage for stock brokers, hedge funds, and other investment groups that often buy or sell 20-30 percent of their portfolio on any given day.
“Many companies in our field use rudimentary algorithms they’ve created in-house to schedule transactions, but in our view, anyone who’s serious about optimization uses a powerful optimization engine like CPLEX from IBM,” said Vijay Kedia, president and CEO, FlexTrade. “We’ve been pioneering the use of mathematics and programming to help clients make objective trading decisions for more than a decade, a key advantage over most investment technology developers who are new to the concept."
FlexTrade uses the IBM software along with the Northfield Short-Term Equity Risk Model to integrate and apply real time analysis to key pieces of information such as time, number of shares, price, volatility and industry to measure short-term risk and market impact involved in buying and selling assets. The program takes into account whether multiple assets from the same industry will likely affect the price of other assets in that market. The best possible schedule is determined to balance risk and market impact and reduce their effect on the buy or sell price of an investment.
The Northfield Short Term Equity Model provides daily variance forecasts for managers with short-term investment horizons by using a "blind factor" model that infers its factors from security behaviors. It can respond rapidly to sudden changes in conditions at the firm, factor, and market levels. When these factors are translated into mathematical programming models, IBM Software determines the right planning and scheduling for executing trades, tackling a challenge that is beyond the capabilities of the human brain or modern spreadsheets.
"Successful trading in today's markets is dependent on both the speed and the timing of execution," said Pierre Haren, vice president, IBM. "The factors that influence the timing are so complex that they require a precise and rapid computerized analysis, a challenge that IBM ILOG CPLEX consistently meets to deliver results that are breaking new ground in this and many other industries."
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