Magazine article Modern Trader

What Users Are Saying about Electronic Trading

Magazine article Modern Trader

What Users Are Saying about Electronic Trading

Article excerpt

No futures issue has started as much old-guard vs. new-wave, traditionalist vs. futuristic wrangling as electronic trading. Hailed as both the wave of the future and the death knell to liquidity and open outcry, automation has taken center stage.

In addition, several corporate hedgers are using custom-designed systems for their trading activities. As risk management becomes increasingly global, there is a need for "a middle-office (vs. the traditional front-office) system," according to Barry Fludgate, chairman of Management Technologies Inc. (MTI). MTI has just introduced a new front-end dealing room and trading management system, an increasingly booming business in the trade.

Fludgate believes the future lies with improved information access for the head trading desk, as well as with strengthened clearing procedures. Current clearing methods are lagging, he says, and must change fast to join the automated revolution.

How is this "revolution" working for those using automation daily? Is computerized trading a boon to productivity or a useful but problematic supplement to established methods?

Interviews with some traders working in differing capacities worldwide revealed varying opinions on the inevitability and liability of the march of technology.

Too many screens, too many hours

Louis Moore Bacon, president of Moore Capital Management, often finds himself watching four computer screens at once. A commodity trading adviser for three years, he manages over $ 100 million in customer funds.

Bacon trades all currencies and "anything that trades" on the London International Financial Futures Exchange (LIFFE), the Marche a Terme International de France (MATIF) and the Singapore International Monetary Exchange (SIMEX). He also is active in the Japanese market with Japanese government bonds.

The Japanese trading method, in which market makers periodically step in and halt trading when markets get too volatile, is slower than U.S. action but allows fewer wild drops and gains.

The anonymity of Japanese screen trading is "one of the beauties' of the system, according to Bacon. With no brokers' identities revealed, a large fund manager can "get to the heart of the market."

Although he has not had as much experience on LIFFE's Automated Pit Trading (APT) or the Sydney Futures Exchange's Sydney Computerized Overnight Markets (SYCOM) systems, Bacon contends they allow you to get things done without revealing your hand." He acknowledges that while they possess low volume, "the after-hours market is thin by nature."

As adviser to clients in multiple overseas markets, Bacon is obligated to use all late-night trading to keep up on trends. The Chicago Mercantile Exchange's GLOBEX will be no exception.

"If you are in a risk position," he says, "you almost have a covenant" to watch the global markets. As a result, "none of us will get any rest anymore."

While Bacon says GLOBEX will be good for exchange efficiency and swifter clearing, he has mixed feelings about the system's overall impact on volume.

"There has to be 24-hour interest in a market for it to be interesting," he says. Markets such as grains, hogs and soybeans may not have people "willing to go in at 2 a.m. vs. 9 a.m.," he says. "The traders will vote by not using their computers."

Voicing technological concerns

James Gray, GNI Commodities director, has watched the number of APT users swell to include not only "proper clients," such as banks, but quite a large number of "form Il" clients, chiefly other futures brokers looking for "efficient execution and service."

Accompanying this increase is continued speculation about APT's role relative to pit trading. Gray's opinion on APT's future is laced with caution.

He contends automated trading could replace open outcry, but such an event would be a " great mistake and the beginning of the end of the futures markets. …

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