advice for equities startup

L

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 software engineers and 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 and dealing with corporation actions 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
- low budget: less than £100k per year for all of the order management (including software and wages for any developer or trader if needed), and aiming for a small fraction of that.

What software would you use for this? How many people would you expect to do this? Again this question is purely about trading and order management processes, not the system that spits out the daily stock quantities required.

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.
 
laplacian, Thanks for your interest. We certainly offer custody and order management solutions for UK-based Hedge Funds.

We can connect you with a London-based rep whose specialty is onboarding small to medium sized Hedge Funds. Please expect a Private Message with said detail.
 
These are thoughts only:

Have you tested your strategy with real size and money? MOCs on those names - unless you're trading against a deriv. contract - are going to kill you. Use a bank with multiple broker relationships - otherwise, they'll see you coming and rip your lungs out on the way in.
A ton of flight from London and Brexit could end up being a concern and possibly a nightmare.
Talk to whomever you end up doing business with about things like rebate passthrough and their willingness to commit capital - you are not always going be at $50 million.
Brexit "may" impact your ability to go offshore for taxes.

Best of Luck.
 
ETJ said:
These are thoughts only:

Have you tested your strategy with real size and money? MOCs on those names - unless you're trading against a deriv. contract - are going to kill you. Use a bank with multiple broker relationships - otherwise, they'll see you coming and rip your lungs out on the way in.
A ton of flight from London and Brexit could end up being a concern and possibly a nightmare.
Talk to whomever you end up doing business with about things like rebate passthrough and their willingness to commit capital - you are not always going be at $50 million.
Brexit "may" impact your ability to go offshore for taxes.

Best of Luck.
More...

Thank you. The strategy was tested in two ways, one with a simulation using slippage assumptions and the other with real money with much less than $50mill (the slippage was almost zero). So far, I am not aware that trading at the close for 500 big US stocks would be a problem. I am happy to be convinced otherwise, of course.
 
laplacian said:
Thank you. The strategy was tested in two ways, one with a simulation using slippage assumptions and the other with real money with much less than $50mill (the slippage was almost zero). So far, I am not aware that trading at the close for 500 big US stocks would be a problem. I am happy to be convinced otherwise, of course.
More...
If you want the close, MOC is your only options. If you want prices toward end of day, there are a number of choices including VWAP include the close, starting at any time of the day ending with the close. We offer a large number of choices including algos, dark and lite routes.
 
S & P 500 ain't the Russell. Go price the baskets and you'll see a huge difference.

Go and have your broker price out a $50 million basket in the S&P - open, midday and close and compare it to the same size, Russell. Pretty much every desk quotes it. The Russell frequently quotes 5 to 10X as wide.
 
ETJ said:
S & P 500 ain't the Russell. Go price the baskets and you'll see a huge difference.

Go and have your broker price out a $50 million basket in the S&P - open, midday and close and compare it to the same size, Russell. Pretty much every desk quotes it. The Russell frequently quotes 5 to 10X as wide.
More...
The Russell 1000 is not like the 2000. The 1000 are the S&P 500 plus 500 other large-cap stocks. The Russell 2000 are the smallest of the Russel 3000, excluding the 1000.
 
laplacian said:
What software would you use for this? How many people would you expect to do this? Again this question is purely about trading and order management processes, not the system that spits out the daily stock quantities required.
More...
I have been writing code for quite awhile and here is how I would tackle this problem. Given that you already have a solution that will tell you what and how much to buy, you simply need a solution that can take a list of symbols and quantities and execute the orders with your broker. This could either be done using a broker API (more coding) or use commercial software that connects to your broker and can run algos (less coding). The algo in this case would be rather "dumb" in that it would simply read (via the file system) in the symbols and quantities for order execution. If I was in your situation, I would select a couple of brokers that look to meet your requirements and hire a programmer to build a very simple prototype for each broker that can connect to the broker's paper trading feature. The idea is to figure out what is going to work for you as cheaply as possible.
 
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