From the November 01, 2011 issue of Futures Magazine • Subscribe!

Automated execution: Set it but don’t forget it

Some trading systems may not work in the time it takes to execute trades manually and system designers may wonder why actual performance does not match their testing results. The problem may not be with the strategy, they simply may have designed/optimized a strategy too complex and fast to execute without greater automation.

At that point they can scrap their system or go all in by automating their trade execution. The key is first to create a solid design that anticipates potential issues or problems and then to create a testing plan that covers anything you can anticipate.

One of the major benefits of good trade execution software is the ability to act on signals 24 hours a day without having a human involved to pick up the phone or go online to input the trade information. The trade execution software generates the trade instruction to the futures commission merchant (FCM) and then handles the resulting responses appropriately, only alerting the trader if there are issues with the trades or unexpected results.

This frees up the trader to work on optimization, creating additional strategies or other business responsibilities. The trader would get involved only if an alert was generated by the trade execution software. It is a lot of work to develop good trade execution software, but in the long run the automation of this process should free up time for the trader. The question really comes down to, can you generate a return on your investment? In this case, time is invested in creating the trade execution software and then free time is generated by not requiring human intervention in the trading process.

An additional benefit to automating this process is a reduction in errors. Because the trade execution instructions are transmitted electronically to the FCM there is no chance of an error because of a miscommunication on the phone with your broker, someone making a fat fingered error or reversing a buy vs. sell order. However, the potential for bugs in the system can create bigger problems (see "Bugs happen, have back-up systems," last page).

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