05 May 2020

Trading in new Markets – focus on solutions

Half of the world’s top 10 financial centres are now in Asia, the time is now ripe for firms that are seeking to expand their successful trading models into new markets. The problem for small and medium-sized trading firms is that the cost of setting up shop in new markets can be overly burdensome and risky. The result is that many firms don’t actually venture into new markets for fear that it will be a costly mistake. The key mantra for any trading firm seeking to export its trading model into new markets is to focus on solutions.  

Before deciding on whether to enter a new market, systematic funds will need to determine whether their models are compatible. 

Roland Hamann, Managing Director, PICO in an interview with BSO offered these words of advice: 

“A high frequency trading firm may be successful in the United States or Europe and may expect it will do well in another market. But before spending hundreds of thousands of dollars, many executives prefer to have evidence that the model will work and a business case that accounts for all the new costs.”

Service providers such as Pico are now capturing historical data in raw packet format and selling it via the cloud.  A trading firm can thus backtest its model to determine how likely it is to work in the new locale before any sizeable investments are made.

As an example, Australia’s market behaves similarly to that of Switzerland, both in terms of liquidity and having low historical volatility. That might make Sydney a logical choice for a Zurich-based fund that does long trend analysis, but a less optimal choice for a fund that typically trades on a two-minute horizon.

 

Try before you buy

Entering a new market is a major long-term decision and the contracts that firms enter into – whether with data centres, network providers or other firms – will typically be a minimum of a year. But a more sensible option may be to try trading in the market on a limited basis. Some third parties are able to provide this service.

In some cases, it may be possible to host third-party equipment for a short period in a data centre. As long as the vendor is working with existing infrastructure and does not need to make new investments of its own, it may be prepared to allow clients a short trial period of one to three months to test, analyse and fine-tune their models.

BSO, as a specialist networking firm, understands how to set up the right networking infrastructure suited for each market. If you are seeking to export your trading model into emerging markets such as Asia we are the network of choice. 

 

To learn more about how you can access the potential of emerging markets read our latest report: “Trading without Borders: How can financial firms breakdown barriers and tackle new markets?” click here