trading startup advice

[laplacian]

Hi all,

I am starting a hedge fund startup in the UK but have less experience on the order management side so I'd like advice from you traders. Here is the situation:

- need to trade $50million in US cash equities at Market on Close only, 500 trades per day from stocks in the Russell 1000, with low portfolio turnover (holding period is weeks to months)
- the strategy is 100% systematic so we would automate daily processes as much as possible, but we expect a manual human check as part of the daily process.
- preferred broker is Interactive Brokers, but this may or may not be the best choice so comments are welcome
- budget: about £100k per year for all of the order management (including software and wages for any developer or trader if needed). It is possible that much less than this is needed considering this simple process trading only at Market on Close, however the daily processes need to be solid as in any professional firm regulated by FCA managing external investor money.

What software would you use for this? How many people working full time? Again this question is purely about trading and order management processes, not the actual model and trading signal which is already automated.

Here is a possible scenario that fits the budget: 2 people working full time, with one software engineer managing the API calls (writing in house software) to Interactive Brokers for the 500 daily trades and another split between coding and daily manual processes, including dealing with corporate actions. I am not sure if Interactive Brokers Trade Workstation is meant for this use case. Bloomberg EMSX looks like the sort of thing that would handle this easily, but I am guessing too expensive and advanced.

 

[Parky]

You can use a market access facilitator who would have all the connectivity including Bloomberg, this would give you good economies of scale and access the a AAA Prime Bank DMA and the lower execution rates as you would have economies of scale.
The Downside is that your funds would be with this provider, you would need to secure guarantees in terms of Intellectual property, they would need to know your Risk strategy, how your system would operate in abnormal market conditions and the ability to manually intervene if required. Interactive is s good platform for retail and low volume access but this is not what you would appear to be looking for. In terms of quality market access you would be better looking and market access facilitators

 

[laplacian]

You can use a market access facilitator who would have all the connectivity including Bloomberg, this would give you good economies of scale and access the a AAA Prime Bank DMA and the lower execution rates as you would have economies of scale.
The Downside is that your funds would be with this provider, you would need to secure guarantees in terms of Intellectual property, they would need to know your Risk strategy, how your system would operate in abnormal market conditions and the ability to manually intervene if required. Interactive is s good platform for retail and low volume access but this is not what you would appear to be looking for. In terms of quality market access you would be better looking and market access facilitators

Thank you. When would you expect IB to be too limited? $50 mill in US equities traded once a day doesn't seem a lot.
Could you give an example of a market access facilitator?

 

[Parky]

You have a number of factors here, firstly how often are you trading and over how many stocks?
Also you state you are a hedge fund, one assumes you are building a track record with a view to attracting investors and increasing the investments and maybe even expanding beyond just US stocks. That being the case you need to look to the future in terms of you infrastructure and connectivity, what you don't want to do is make major changes down the road, so you need to have an eye on growth potential and a market access provider that will work well with large volumes in the future.
Happy to give you an example on a market access provider as a PM

 

[laplacian]

You have a number of factors here, firstly how often are you trading and over how many stocks?
Also you state you are a hedge fund, one assumes you are building a track record with a view to attracting investors and increasing the investments and maybe even expanding beyond just US stocks. That being the case you need to look to the future in terms of you infrastructure and connectivity, what you don't want to do is make major changes down the road, so you need to have an eye on growth potential and a market access provider that will work well with large volumes in the future.
Happy to give you an example on a market access provider as a PM

Daily rebalancing of 500 stocks. Low turnover, average long or short position is weeks/months.

Since the trading setting is pretty simple, I would think it is better to do something quite simple now, then extend or rewrite it later when new requirements increase (multi-broker, non-US markets,...). Do you have anything particular in mind of something that would be better to design right now, even if it has no use case (yet)?