Awaiting a Truly Democratic Trading Platform

Democratizing traders’ access to algorithmic trading systems serves everyone’s interests. For the sake of robust, sustainable global economic growth, it’s critically important that quantitative traders have access to affordable high-performance algorithmic trading systems, regardless of their geographic location or their amount of assets under management.

Democracy is often defined as a form of government in which supreme power is vested entirely in the people, and directly exercised by them in a free, open system. By extension, a democratic trading platform is one in which the aggregate decisions of all traders directly influence the marketplace, without being constrained by proprietary software owned by special interests or market gatekeepers.

Algorithmic trading systems have the power to truly democratize the world’s marketplaces. Empowered by high-performance algorithmic trading tools, individual traders can help keep marketplaces, institutions and governments “honest” by providing them with economic feedback in the form of lightning-fast trades executed in response to real-time events. Before considering how algorithmic trading software can help save the world, let’s first consider the evolution of software in general, and its implications for the global economy.

Open-source coding is the key to democracy

In the past, most software development was proprietary rather than open-source – Code was written behind closed doors, and almost all software was jealously guarded. Competing programs were developed in parallel, at great expense and without benefit of overlapping collaboration. Nowadays, many people agree that open-source software is good for society overall. When blessed with open-source code, software programs rapidly bloom into broad, robust platforms.

Flexibility, transparency, interoperability and lower development costs are all touted as benefits of open-source development, and success begets more success:  The more users and developers, the more value. And, most importantly, the broader the development base for a given software platform, the more diverse its appeal, and the greater the reach and impact of that software. Logically, open-source algorithmic trading software will offer the same benefits to both the financial-services industry and independent traders alike.

Black box or open source?

Yet, even though the global IT-savvy community has largely embraced the concept of open-source software, unfortunately, this revolution has not significantly improved the financial-services industry yet. Given the traditional culture of secrecy surrounding discussions about money and financial services, and money-managers’ hesitancy to divulge their proprietary trading tricks, perhaps this mentality is understandable.

At the same time, the world’s financial systems are now being operated based on sophisticated technologies, all driven by proprietary algorithms. Since most financial activity is already governed by algorithmic trading in the hands of large institutions, especially the inter-bank forex traders, now seems the right time for a democratic trading platform to include all traders, both large and small, through the adoption of affordable, high-performance algorithmic trading systems available for all.

In this new, open-source world, the disruptive ideas and creative conflicts of a large community of thinkers and developers are more robust and ultimately more beneficial than the narrower input from a handful of gurus focused on proprietary, corporate-driven objectives. Algorithms should be available to everyone, not simply the elite inter-bank traders.

Small traders who have traditionally relied on short-term manual trading have found it difficult to earn profits on the current algorithmic environment dominated by institutional giants. In addition to disrupting the old status quo in financial marketplaces by offering independent traders super-fast order-entry speeds, mechanical trading based on algorithms also helps them minimize the effects of emotions on trading, as well as helping traders maintain discipline and achieve better consistency. Like it or not, these small, independent traders have been the last group to be empowered by algorithms, and they urgently need all the help they can get.

Currently, algorithmic trading remains hidden behind a wall of secrecy and exclusivity. The relatively small community of specialized coders who write trading algorithms continue to evoke the “voodoo” image which often frightens small, independent traders – By asking too many questions about how and why algorithms work, traders risk failure, or worse. Any trader or programmer who seeks to transfer useful trading algorithms into the general trading population risks being attacked as criminal.

Even if the current costliness and under-accessibility of algorithmic trading systems were warranted because of the large investments in data collection and programming wizardry which must be dedicated to building such products, still, uncountable hordes of traders are awaiting that democratization of trading software which has already become the norm for other types of now-open-source business software.

Quants to the rescue

Because of their reliance on algorithmic trading tools, today’s quantitative traders are at the front lines of this struggle between the old “black box” mindset and the new world of open-source software coding and other democratizing technology trends, which include such diverse advances as crowdsourcing, social networking and the nascent Internet of Things.

Programming languages like Python and automated platforms such as TradeStation and NinjaTrader have the potential to allow do-it-yourselfers to tinker until they create the “perfect trading system,” in the same way that early technology geeks labored in Silicon Valley garages until they changed the IT world, regardless of the rigid proprietary hierarchies enforced by IBM and other now-extinct early giants of computer technology. Still, most of the current trading platforms are not truly democratic because they require the use of specific proprietary broker interfaces.

Affordable, open-source, high-performance algorithmic trading tools for everyman

For those naysayers who would claim that democratizing a winning trading platform would create fewer winners by equalizing traders’ strategies and thus remove the spreads from trading, the track record of other open-source development efforts would imply that the reverse is true – Notwithstanding the widespread availability of mechanical trading systems, individual traders are human and therefore trade according to their own individual instincts and desires. Thus, each trade will always have a counter-party at an agreed price, even with enhanced transparency and price discovery across an algorithm-fueled platform.

In summary, it seems logical that offering traders more access to algorithmic trading will bring far more upside than downside to our global markets. Just as today’s tech giants work alongside tiny tech start-ups worldwide in both a competitive and collaborative sense, both large institutional and small independent quantitative traders alike would benefit from access to an affordable, high-performance, and most importantly, open-source trading system.

Smart people worldwide work together for mutual benefit on a wide variety of endeavors…. Why not algorithmic trading systems? It’s time for the revolution to begin.

2 Responses to Awaiting a Truly Democratic Trading Platform

  1. Interesting article, I think that there is very much scope for Java as a full language for quantitative trading. Not only is it much more high level language but also there is a very strong and large community for Java.
    I am also wondering if Marketcetera is going to venture into the more retail segment?

  2. Good read, and for the record, I think there’s very definitely a place at the table for an open source algorithmic trading software solution. I don’t see that there’s an inherent conflict there.