Proprietary Trading Firms - A Different Business Model

FINAL PROSPECTUS

A final prospectus is the conclusive version of a prospectus for a public offering of securities. This document contains comprehensive details regarding the offering and is often referred to as the "statutory prospectus" or an "offering circular."

Here are the key points about a final prospectus:

  1. Purpose: A final prospectus serves as the primary source of information for investors when they are considering investing in a publicly offered security. Companies are legally required to file prospectus documents with the Securities and Exchange Commission (SEC) to raise capital for the product being offered.

  2. Content: The final prospectus includes:
    • Background information about the company or issuer.
    • Number of shares or certificates to be issued.
    • Offering price (the price at which the securities are being sold).
    • Risk factors, fees, and other relevant details.
  3. Filing Process:
    • Companies initially provide a preliminary prospectus (often called a “red herring”) to potential investors. This preliminary version lacks specific pricing details.
    • Once the company has gathered enough information, they file the final prospectus when the security is ready to officially go public. The final prospectus contains all the necessary details, including pricing and share volume.
The final prospectus is prepared during the end of the cooling-off period. Among other things, it incudes the offering price, the delivery date and the underwriter's spread.

Remember that transparency and investor awareness are essential aspects mandated by prospectus legislation Investors can find new prospectus filings on the SEC's website, ensuring they have access to accurate information before making investment decisions.
 
THE THREE TYPES OF STATE REGISTRATION FOR SECURITIES:

  1. Coordination:
    • Purpose: Coordination is primarily used when a company conducts an initial public offering (IPO) and wants to register its securities with both the SEC and specific states simultaneously.
    • Process:
      • The company files a registration statement with the SEC.
      • Simultaneously, it files a registration statement with the state securities administrator in the states where the securities will be sold.
      • The state registration process occurs alongside the federal registration.
    • Submission Requirements:
      • Three copies of the prospectus.
      • Any amendments to the prospectus.
      • The amount of securities to be offered within the state.
      • A list of other states where the securities will be offered.
      • Additional information as required by the state administrator (e.g., corporate bylaws, articles of incorporation, specimen of the security).
    • Effective Date:
      • State registration becomes effective after 10 days, provided no stop order has been issued.
      • Alternatively, it becomes effective simultaneously with the security’s federal registration.
    • Note: State registration cannot occur before federal registration.
    • Example: IPOs often use coordination for simultaneous registration with both the SEC and state authorities.
  2. Qualification:
    • Usage:
      • Securities that do not meet the requirements for filing registration and are not part of an IPO.
      • Securities sold only within a single state through an intrastate offering.
    • Process:
      • The issuer submits a registration statement to the state securities administrator.
      • The state reviews and qualifies the securities for sale within that state.
    • Note: Qualification is commonly used for local offerings within a single state.
  3. Notification:
    • Applicability:
      • Securities that are federally covered (registered with the SEC) but not required to register with any specific state.
      • The issuer must indicate in its registration statement the states where it intends to sell the security.
    • Example: If a security is available in multiple states, notification is a streamlined way to handle state registration.
In summary, coordination is for IPOs, qualification is for non-IPO securities, and notification applies to federally covered securities. Understanding these methods is crucial for navigating securities across different states.
 
THE PROCESS OF DEVELOPING AN AUTOMATED TRADING SYSTEM

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Even if a proprietary firm does become a reality some day, if NPP proves to be as profitable as this week's activity suggests it might, I cannot imagine not giving serious consideration to automating the system at some point.

However, I have absolutely no idea how complicated this might be, and will therefore need to be extremely careful about who I hire or partner with to help me do it. Just by way of introduction, I'm pasting these snippets from Riks' "Looking for a partner for automatic trading" thread to give me the tiniest hint of an impression as to what are all the things such an endeavor might entail, and establish a starting point from which to begin researching precise details on the real steps I'd have to take before NPP could be implemented in its entirety by computer programs:
  • Developing an automated trading system can be done (or at least this was apparently the case twenty years ago) using the Oanda API, the Esignal data provider using DDE technology (there was complete automation of data uploading through programming keystroke events and mouse buttons without human intervention).
  • However, the IB API later made available many more tools (for trading in IB), not to mention the cost advantages.
  • You can develop a system for trading futures contracts of currency pairs and commodities.
  • You can also develop a system for trading Forex instruments (such as CFDs in IB) and shares.
  • The automated trading system can operate without human intervention (only the weekly launch of TWS, taking into account mandatory two-factor authentication is required) starting from uploading data in real mode, on several servers from several different TWS (such as three instances of TWS), to if one data source is disconnected, there is a switch to another, data filtering (data is filtered using mathematical analysis in terms of "defective" ticks), synchronization (merging) of ticks from three data sources (InteractiveBrokers has a problem with data quality in real mode, on three Different TWS may receive slightly different data.
  • As a result, ticks from three sources per unit of time are analyzed and the optimal one is selected), data preparation to reduce the load and volume for trading algorithms.
  • Trading applications operate in automatic mode, there are options for automatic start, stop, notification to the phone about all events, balance control, automatic transition to summer/winter time, exclusion of holidays and weekends, etc.
  • To minimize the load on the server (and from the point of view of a large number of ticks), there is a special module for caching the necessary ticks, and outdated and irrelevant data is transferred to auxiliary database tables, which are accessed when necessary.
  • On weekends, data for the week is downloaded through history (in case of force majeure during the week), as well as automatic archiving of the state of the entire system (applications, settings, database) to several backup servers for quick recovery in the event of a breakdown, shutdown, or other force majeure.
  • There is an archive of data with the system development process including source code, ticks, trading results and etc.
  • The system can be made to work with a MySQL database, C++ code, with the load on not the most powerful servers being up to 10-15%, even during "rush hours" when there is news or some events occur on the stock exchanges. The results can be a stable plus for currency pairs, even on small volumes (even when trading 1 lot for 20,000-35,000 units, depending on the pair, taking into account the commission for entering/exiting a transaction of about $4.00).
 
While no company operates exactly like Renaissance Technologies, several firms employ similar methodologies, such as:
  • Two Sigma: A quantitative hedge fund that uses data science, machine learning, and statistical models for trading. They focus on diverse asset classes and alternative data sources. Two Sigma is a $60 billion quantitative trading firm that was beset by troubles in 2023 that tarnished its image and threatened to hurt its future.
  • D.E. Shaw: Known for its quantitative strategies, D.E. Shaw, another $60 billion firm, combines mathematical modeling, data analysis, and technology to make investment decisions. According to Reuters, in comparison to the broader indices such as the S&P 500 or the Nasdaq 100, D.E. Shaw's main funds lagged the market in 2023. The S&P returned 23% while the Nasdaq 100 delivered a mouth-watering 53%. However, if you zoom out and look at longer-term returns, D.E. Shaw is a remarkable investment that has helped investors to cope with the market fluctuations. Its flagship funds delivered positive returns in 2022, when the major market indices suffered huge losses, with the S&P 500 plunging 19% and the Nasdaq 100 plummeting 32%. Moreover, both funds have maintained consistently delivered double-digit returns since they were launched. Since inception in 2001, the D.E Shaw Composite Fund has returned 12.5% and has only had one down year, according to a report by the Institutional Investor. The Oculus Fund, which was launched in 2004, has returned 12.8% since inception, and has not had a single negative year, the report notes.
  • Citadel: Citadel's quantitative division employs data-driven models for trading equities, options, and other financial instruments. They also invest in technology and infrastructure. Citadel LLC is one of the largest hedge funds based in the U.S., with approximately $92.46 billion in total assets under management as of Sept. 30, 2023. Citadel has generated roughly $74 billion in total gains since its inception in 1990, making it the most successful hedge fund of all time.
  • AQR Capital Management: AQR applies systematic and data-driven approaches across various asset classes. Their research spans factors, risk premia, and alternative data. By one account, as of the end of the second quarter of 2023, AQR's AUM (assets under management) was around $120 billion and its peak revenue was $52 million (in 2023).
 
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Saturday | April 27, 2024

Let's say you start making some serious money trading the NPP system manually. Then what next? Following will be some notes on things for me to look into and understand better to make more-or-less informed decisions on possible steps to take with respect to automating everything, if and when I generate enough funds to do so...
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First of all, apparently I could begin with script written entirely in Javascript or Python consisting of a data query (AKA GET request) via OANDA, Alpha Vanguard, or some other API of my choice.

Analysis would be done using basic math functions available in standard Javascript or if using Python...NumPy (a library for the Python programming language, adding support for large, multi-dimensional arrays and matrices, along with a large collection of high-level mathematical functions to operate on these arrays.)

(Since I've never heard of NumPY, let's say I go with Javascript.)

Visualization of Data can be done with a free/open source Charting Library (a library is simply a set of coding assets that are reusable across projects). A simple open source library for Javascript would be Chart.js or D3.js. (The python option would be Plotly).

This visualization would be displayed to a web page created with basic HTML elements and run from my device instead of a server.

After Analysis is completed, the program would automatically send an order request to a designated brokerage's API (in this case OANDA). This order is called a POST request.

To accomplish this, I should expect to spend anywhere from $1,000 to $5,000.
 
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Here is the third, and most sophisticated option...

Option III NPP Automation.png


Note: User Experience (UX) Design and User Interface (UI) Design are two pillars that play a crucial role in the realm of digital product development. While they share a common goal of providing a positive user experience, their approach and areas of focus differ significantly. UX Design delves into the conceptual aspects, understanding the user's journey, and ensuring a logical flow from one step to the next. It's about solving problems and making the interaction as efficient and straightforward as possible. On the flip side, UI Design is about the visual and interactive elements of a product's interface. It involves designing the layout, visual aesthetics, and interactive properties to ensure not only a visually appealing experience but one that guides the user intuitively through the product.

UI/UX Designers and Developers play distinct but complementary roles in creating a digital product. In essence, while designers focus on the look and feel of a product, developers focus on making these designs functional. The collaboration between UI/UX Designers and Developers is pivotal in ensuring a product is both aesthetically pleasing and functionally robust.

SUMMARY: User interface design or user interface engineering is the design of user interfaces for machines and software, such as computers, home appliances, mobile devices, and other electronic devices, with the focus on maximizing usability and the user experience.
 
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