STRATEGY CHECKLIST FOR YOUR ELECTRONIC TRADING PLATFORM

For those watching the US Treasury market after a Federal Reserve announcement or an unexpected reading on US unemployment, the experience of  volatility in action should serve as a reminder to master the tools of your electronic trading platform and have a “disaster plan” to deal with the potential problems that your financial institution will not take responsibility for. If you bite the bullet and actually read the details of your electronic trading agreement, it is essentially saying to Trade at your own risk!

Here are some strategies and tips to alleviate some of the risks that could add unwanted costs to your trading.

If you have decided to proceed with a self directed account, be sure to confirm with your client service representative that you are receiving the proper commission rate. Find out if this rate is negotiable based on elements such as account size, trading volume, and industry competition. The major difference between broker assisted and self directed trading accounts in this day and age is who takes the error risk in placing the trade. While this may seem contradictory be sure to find out if your firm has live trading assistance from an order execution desk in the event that you cannot access your trading platform. The firm should have 24 hour live service and be willing to execute trades for you at the self directed rate-as long as the client does not abuse the access. Otherwise the firm may seek to raise your commission rate. 
Take the time to familiarize yourself with the features and market/trading access that the platform has to offer. A self directed trader needs to have a clear understanding of the following.

• Placing BUY/SELL orders. Traders need to be aware of how the defaults are set with regards to a order request. If the trader is looking to buy an instrument ,will the platform pull up the best offer price (the price that a financial instrument can be purchased immediately) or the current bid price (the price that a financial instrument can be sold for immediately)? The same question should be applied to sell orders. Traders need to know if their platform is always cocked to pull the trigger for order execution and if so must be especially careful to control the price entry field and the execution buttons.

 Continuing the examination of problems with Electronic Trading Platforms, one of the most prevalent and costly problems I have experienced in managing electronic trading desks comes from clients and order brokers that duplicate the entry of and order. The primary rationale for “duping” these orders is that the order confirmation does not appear on the screen in the expected time.

A trader natural inclination may often be to just reenter the order, assuming that the order simply did not take. There are a number of points along the communication line between the trader’s computer terminal and the institutions server where a breakdown or slowdown can occur. The slowdowns can be particularly prevalent during periods of high volume, such as right after the release of economic data that surprises the market and spikes trading activity.

If your order fails to confirm, I suggest implementing the following action checklist;

• Be Calm!

• Check your internet connection to see if connectivity has been lost. Your router may need to be reset or the platform may need to be exited & signed back into.

• Check the other windows on your platform to see if the order has been routed there. An order that was supposed to be entered as a limit order may be routed to the order fill window if the price was entered incorrectly or entered as the wrong type of order (stop order vs. limit order, etc)

• Call your broker or customer service provider to have them check on their platform or server if the order is currently working. If they are unable to confirm the orders status, have them contact the exchange where the product trades (CME GLOBEX, ICE exchange for most US futures products as an example).

• After completing these steps, if the order can be confirmed not working then consider reentering the order into the system. Be sensitive to continuing problems with order entry. If they continue, it may be a computer problem that requires service. Consider using the Customer Service Desk to exit, modify, or enter orders until the computer can be checked over.
• BE CALM!

The trading and investing environment is challenging enough without providing additional “donations” of your capital through avoidable execution mistakes. Remember your trading agreement essentially absolves the financial firm from any responsibility (trade at your own risk!). It is vital that traders make as serious a commitment to developing their order execution strategies as they do their market analysis and capital risk management.

Best Regards
Richard Roscelli

Any recommendations or commentaries found in this analysis are strictly of an opinion based nature. Past Performance is not a guarantee of future results. There is a risk of substantial losses when undertaking any type of financial investment and one should consider carefully whether a financial product meet ones risk tolerance. Seek out the guidance of financial professionals to clarify elements of financial products and strategies that you do not fully understand. Any decisions to purchase or sell a financial vehicle will be the full responsibility of the person authorized to make such transactions.