Financial markets regulators are starting to form their collective conclusion that copy trading and signal trading should be regulated in the same category as portfolio managers, meaning compliance inspections, regular report filing, and the time consuming and resource-hungry procedure of lead traders or money managers ensuring that each trade that is placed is suitable for the clients following the signal, or for those having their trades executed automatically.
The Financial Conduct Authority (FCA) in the United Kingdom last week ruled that it will regulate copy trading platforms and signal providers along these lines, thus requiring companies to comply with expensive and bureaucratic procedures.
However, what if there was a solution that allows the trader to own a virtual server, and effectively own his own algorithmic trading facility, thus avoiding the rulings which are imposed when using a third party copy trading platform?
Such a system has now come to fruition, developed by Seer Trading Systems and Autochartist under the steerage of CEO Ilan Azbel.
LeapRate today spoke to Mr. Azbel in detail regarding the new offering, called SeerHub, which combines Autochartist’s expertise in non-brokerage FX services with Seer Trading’s technology which was traditionally aimed at the institutional world of hedge funds, banking institutions and asset managers.
Mr. Azbel explained to LeapRate that there is a requirement within the retail FX industry for a cost-effective, adaptable system for automated trading which does not fall into the category of portfolio management, and can help brokers retain clients for longer, whilst ensuring that clients are provided with a quality, transparent service.
For this purpose, Autochartist made an investment in Seer Trading in order to develop the SeerHub solution jointly, viewing this as the first time that an institutional algorithmic trading facility can be made available to retail traders under a system where the entire algorithm and server can be privately hosted and owned.
Indeed, systems which offer backtesting and full algorithmic hosting services such as CQG or QuantHouse are expensive and aimed at large institutions, and are inaccessible to the retail trader.
“We were looking to unite Autochartist’s values of ensuring that the trader gets the best possible value from an automated trading strategy, as well as keep the cost down for brokers” explained Mr. Azbel.
“In developing SeerHub, we can allow traders to own their own virtual private server, hosted on the Amazon Cloud, which attaches itself to a retail trader’s brokerage account and does not involve any third party.”
In terms of current development, Mr. Azbel explained that SeerHub is going live with four trading strategies, three of which are named after rivers of the world, Indus, Yenisey and Parana, the fourth being Autochartist’s strategy. Traders can select a strategy that they may be interested in, and view the track record of the system, trade history, and full algorithmic trading details.
An important factor to consider is that traders can see in the trade population how diversified these strategies are. “We have leveraged off Seer Trading how to provide smooth, sustainable returns rather than being overfitted to current market conditions.” considers Mr. Azbel.
“This is a however the source of one limitation these systems” he pointed out, “because the strategies are diversified across many instruments, sometimes up to 8 pairs, the strategies will struggle to run on accounts with less than $2,000 of equity.”
“Instead of buying an expert advisor (EA) and then installing an EA separately, and then installing MT4 separately, and then being faced with the costs associated with this, with Seer Hub you click the Trade button, and it deploys the virtual server, which you own, it installs Seer Trading on the server, and customizes the algo to only take positions based on a traders equity and margin requirements.”
“Because Seer Trading comes from an institutional background, the execution method is based on cash balances and available margin. Accounts of traders which are connected to existing copy trading systems can expose the trader’s entire balance to risk. SeerHub operates its algorithms based on the actual balance within a trader’s account at the specific time.”
As far as ergonomics are concerned, the entire system can be managed from the server’s web-based and mobile user interfaces, thus users have complete control over the server, with no need to install a trading platform.
SeerHub does not get remunerated on volume, and the company operates as a server hosting provider rather than a copy trading provider. On this basis, a fixed fee for each server is payable, and as a result of this, regulations do not apply because the trader owns the server, which is leased on a monthly basis. The trader also owns the algorithm, meaning that there is no third party managing the funds of any client, thus no possible conflict of interest.
Mr. Azbel explained that it is important to consider the frequency at which the algorithms trade. “If, for example, a broker chooses to pay for the server on behalf of the investor, they would recoup the cost of the server within the first two days of every month.”
Indeed, the realms of institutional algorithmic trading now appear within the reach of the retail trader, and brokerages and lead traders remain unburdened by the expense and bureaucracy associated with regulatory reporting.