The stock market has become more and more competitive as more players with algorithmic trading technologies compete for profit. These traders use computer programs to responds automatically to market conditions to enter large trade orders. With so much money on the line, it’s important that the decisions are made correctly and with the best technology available. Fortunately, there are now more real-time analytics tools than ever before that take advantage of the cloud and other technology to compete and win.
The market for even one highly traded stock can include many billions of data points over time. Some companies trade tens of millions of times per day. Computing using the entire market obviously includes even more data points. Only heavy duty big data tools and database virtualization are able to process all this information and spit-back the correct decision in real-time.
For example, the new computing language Hadoop was created to be a back-end for big data platforms. It is incredibly fast and compresses data quickly. Expert traders can set-up a back-end Hadoop trading algorithm. As the market trades throughout the day, the new data is fed into the system for a quick response on the next trade. In real-time, the Hadoop algorithm uses its massive database to update your algorithm. Traders then use a lower level language such as C or C++ to send the buy or sell signal directly to the exchange.
New cloud database systems also help traders scale up their data usage. For their first trade, they may only use one stock or a very short time period. The data may still exceed their own hard drive and a back-end database may be required. The main benefit of a cloud system is that the trader does not have a huge upfront expense to buy their own server. On the the other hand, they can scale up month by month as large as they want to get. Cloud systems are now provided by the largest technology companies in the world and their capacity is truly unlimited. Their is no database that is too large for these companies. The major stock, options and forex exchange markets also provide cloud services for traders that want to get as close to the action as possible so that their trades can be executed within milliseconds of placing the order.
Even better, these new cloud systems have advanced cyber security systems that are much more powerful than an individual trader or trading firm could program or buy themselves. Massive technology companies spend tens of millions of dollars to assure that their cyber security protections are constantly updated to meet the highest standards. Furthermore, the IP behind the algorithm is truly the traders bread and butter. If that is stolen then everything is lost. Even worse, under the market system, when two or more traders are using the exact same strategy to trade the market, the profits trend toward zero. For that reason, cyber security is extremely crucial for algorithmic market traders.
While more and more traders are using algorithmic methods to make a profit, more and more and also using back end systems. The strategies are proliferating and the variability is growing. The need for back-end cloud databases that can crunch real-time data also continues to escalate.
For example, one common strategy is to conduct a pair trade of two similar stocks. Airline A and Airline B are extremely similar companies. When Airline A goes up, Airline B should also go up by a similar amount and vice versa. Traders can use the expectation of these parallel movements to jump on a trade in milliseconds on Airline B to match the change in Airline A. However, the trader will need to analyze historical data to understand the expected difference between these two stocks as well as their relative movements. A company creates a program to analyze ten years of minute by minute movements of these two stocks. Using it real-time analytics, it plugs in the newest trade data and the resulting buy and sell orders are produced.
Overall, real-time analytics and cloud storage are revolutionizing business. Many different businesses are taking advantage to increase profits and gain a competitive edge. Stock market traders are one group that is benefiting handsomely from the changes in technology.