StreamBase has responded to increasing interest in foreign exchange (FX) trading by teaming up with algorithmic FX trading specialist MarketFactory to speed up ‘time to first trade’ for hedge funds, banks and trading firms accessing the spot FX market.
While interest in FX trading is growing, there remain barriers to entry, particularly the problems around limited and inconsistent market data. Richard Tibbetts, chief technology officer of StreamBase, explains: “Accurately interpreting market data from legacy exchanges is a major recurring issue for all firms seeking to trade the institutional FX market.”
Darren Jer, a co-founder and chief operating officer of MarketFactory, concurs, saying: “FX is a lightly regulated, OTC and cross border market in which every electronic communications network (ECN) and exchange distributes prices differently. Managing FX market data is difficult as there is little data and much complexity in understanding how to interpret each message from each ECN or exchange. Some provide tick by tick data, others don’t, and most send data from different levels of the order book.”
He continues: “The need is to make sense of the market data in a normalised, lossless and low latency way. It takes a lot of time to figure out a methodology to understand all the data from ECNs and build models on it.”
As a software engineering company founded in 2007 and dedicated to FX microstructure, MarketFactory has developed a vendor solution to resolve the problems of incomplete and complex FX market data. The company’s Whisperer software has been available since late last year and the company will continue to go to market alone, but says its partnership with StreamBase has received a lively response.
Essentially, the joint solution integrates Whisperer software and StreamBase’s FX trading framework and Event Flow Language to create a complete, low-latency FX trading platform that can be set up in days or weeks. Users can achieve rapid development of programme trading models and graphical user interfaces, as well as e-commerce, pricing and risk management engines, while a single application programming interface supports access to seven FX venues for both market data and order submission.
Tibbetts says development of the solution was customer driven, with StreamBase users noting the attractions of MarketFactory’s technology and asking for it to be integrated within the StreamBase framework. The company says a handful of small hedge funds and a large broker-dealer are already using the MarketFactory algo application within its FX framework and are gaining the benefits of low latency access to best price venues and quick execution of FX trades.
“As more FX execution platforms are added, more of our customers are interested in FX aggregators,” says Tibbetts. “Some are developing their own rules for aggregation and routing, but others prefer to use the expertise of MarketFactory and plug its product into the StreamBase framework. If a customer has a StreamBase framework and smart order router, the integration effort and cost are fairly trivial.”
MarketFactory’s basic software includes algos with 16 variables to calculate what is most likely to be on an order book when data is not shown and users can add further modules with more advanced algos to improve the deterministic prediction of what a market may look like. As well as offering access to the best price venues and achieving fast execution, the solution fulfils the relationship between higher order fills and greater returns.
MarketFactory believes its proposition faces little direct competition in the market and meets its claims of low-latency and lossless market data for high frequency traders by providing its software as a service and co-locating it near FX trading venues run at Equinix data centres in Secaucus, New Jersey and Slough, UK, and at 350 East Cermak Road Chicago.
As well as its partnership with StreamBase, MarketFactory last month made an alliance with Fixnetix (see here). This arrangement sees MarketFactory providing FX trading connectivity software at Fixnetix’ data centres, allowing existing equity customers to start trading FX through their relationships with Fixnetix.