In today’s energy markets trading volumes are increasing rapidly, due to automated trading bots and more active players. Over 60% of all trades conducted in EPEX intraday continuous trading are placed and executed by automated routines. While this development is not new in power trading, it is now shifting into gas trading as well. Automation speeds up execution significantly. Operational and infrastructure risks increase when automation is not controlled and monitored. Developing algorithmic trading by using a proven blueprint as a guideline is the most effective approach resulting in the lowest Time2Market – the time until your automated trading strategies can be set active and generate profits.
Whether your organization has already established automated order placement and execution, or it is introducing it now, it is crucial to establish a structured approach to achieve your customized and profitable automated trading strategies. In a nutshell the approach should contain the following components:
Identify trading strategies that generate the highest profit based on the business and requirements of your organization. This is the starting point of the roadmap.
Understand your current system landscape and infrastructure, legacy systems and processes, regulatory framework, current data household, etc.
Derive target situation based on your identified Trading Maturity Level in terms of optimal data household, optimal system landscape, appropriate process framework, regulatory requirements, etc.
Establish and define clear tasks that will enhance your organization. This is the step that closes the gap between the identified current situation and the defined target situation.
Time2Market is a very critical factor. If the speed of implementation is too low, your organization loses money. Not just by unnecessary implementation costs, but especially by opportunity costs – the profits your organisation does not earn while your trading strategies are still inactive. Many obstacles – as shown in the diagram – might increase Time2Market. At the same time running trading strategies too early without sufficient back-testing and analysis can create immediate losses. Gaining the competitive edge in trading will become even more important in order to stay ‘in the game’ and benefit from market activities. Professional planning and applying proven methodologies such as the FORRS Maturity Model have delivered the best results in highly competitive environments.
FORRS is an internationally operating management consultancy, based in Germany. Our clients include banks, asset managers, insurances, energy- and commodity trading companies. FORRS’ expertise spans over the complete value chain of trading businesses. Problem Focused — Solution Driven. This is FORRS.