Exclusive: Retail traders can now design, backtest and work together to develop algos historically available only to banks and hedge funds

Hedge funds and interbank dealers no longer have an advantage over retail traders with more capital to design algos and trading systems to beat the market

There is no doubt that today’s retail traders bear very little similarity to the retail traders that existed en masse even as recently as the end of the last decade.

Just under a decade ago, the MetaTrader 4 platform had already rocketed to ubiquity. At that time, however, its format was a closed system, not designed to connect retail traders to a live marketplace. Instead, it was integral to the dealing desk software, hence the counterparty was always the house.

Back then, FX trading was in its infancy on the retail market as a global proposition, bringing to fruition thousands of new brokerages in unregulated jurisdictions. It targeted a global audience of uninitiated novices, with startup costs of just $5,000 for a white label license and a monthly service fee.

The market connectivity, trade reporting, post-trade settlement, aggregated price feeds and decades of experience required to negotiate prime brokerage relationships with banks were anathema to the owners of the plethora of brokerages that appeared at the time; to all of the customers said brokerages onboarded, these prerequisites were completely foreign.

Unlike the experienced British and American entrants to the retail electronic trading world — such as FXCM, GAIN Capital, IG Group, CMC Markets and Matchbook FX — whose proprietary trading platforms, experienced developers and market experts set them apart as industry benchmarks, the new MetaTrader 4 firms were there to capitalize on untouched territories.

Evolution has been rapid, however, and whilst the MetaTrader 4 platform is still used by the customers of over 1,231 firms globally, that is the only similarity between the brokerages of the early millennial years and today.

With the evolution has come the experienced retail trader.

Charting software, news and analytics, ten years of experience and prominence in a global marketplace and an understanding among the financially astute as to the mechanics of trade execution are now prominent factors. Regulators globally have implemented specific directives aimed at ensuring that companies educate and inform their customers. Forums, research and insights into how retail trading systems operate proliferate the internet.

Jared Broad, CEO, QuantConnect

Effectively, retail OTC trading has come of age, and its now enlightened traders, seek to emulate the institutional sector, but without the costs associated with being a proprietary trading entity or a clearing member at one of Chicago’s exchanges (which can cost over $500,000 per year in membership fees plus clearing costs.)

FinanceFeeds spoke in detail with Jared Broad, CEO and Founder of QuantConnect, a company that exemplifies the drive toward institutional emulation for retail customers without the entry barriers. QuantConnect brings its service further toward mainstream traders via the integration with OANDA Corporation to serve the company’s global client base.

Mr. Broad approaches the FX industry from a technological perspective, his own background being one of trading system ingenuity. It is clear, therefore, that QuantConnect is absolutely not a triumph of marketing over substance, but rather the expertise of real quants and programmers.

“We started QuantConnect with an engineering approach to finance, and began building a website to provide service. Within our user base, we have hackers, programmers, computer geeks and quants. We give them the tools to be able to develop algorithms,” Mr. Broad explained to FinanceFeeds.

How does it work?

Mr. Broad explained the modus operandi of QuantConnect, and its crowd-based, peer-to-peer nature. “People sign up for QuantConnect in order to develop algorithms and work collectively. Most of our users are in the United States, however we do have an increasing global audience, which is made up of thousands of people who like to code and are designing their own algos.

“There is a lot of hidden complexity to getting an algorithm live trading. Getting the data right and maintaining reliable connections to brokerages is a hard problem that we take care of on the backend, and then make available to the community,” explained Mr. Broad.

“We support equities, FX, futures, options and CFDs. The algorithms being developed can be used to trade any of those asset classes, with the system currently able to integrate the algorithms with OANDA, FXCM and Interactive Brokers. With white-label integrations, a trader can go to OANDA Corporation’s website and receive a version of QuantConnect, which is free and able to be used with OANDA Corporation’s clients,” said Mr. Broad.

FinanceFeeds inquired about how the system is capitalized, and Mr. Broad explained, “Our end user is always the trader and engineer designing an algorithm. However, when they are the client of a brokerage, we are able to subsidise the costs and offer free live trading as the brokerages pay a monthly licensing fee for integration with QuantConnect.”

What drove the idea for a centralized, democratic point for algo developers?

Mr. Broad explained that his own commercial experience and background led to the development of the QuantConnect system.

“From 2009 to 2011, I was designing algorithms for my own trading. It took an enormous amount of work  gathering the data, and building a platform so I started to see an opportunity to help other potential quants like myself, and bring them together in an online community.” – Jared Broad, CEO, QuantConnect

“The company was founded in late 2011, but I spent a few years before that building the concept and implementing it via my own strategies,” he explained.

“QuantConnect was formed right when the ‘Occupy Wall Street’ movement was gaining momentum. I always felt it was better to empower the retail investors with the same tools as banks and hedge funds rather than resist the progress algorithmic trading brings.” – Jared Broad, CEO, QuantConnect

“Part of the ideology of democratization of algorithms that is instrumental to QuantConnect is the use of an open-source platform which allows members of the public to use the same tools that the banks have. More than fifty engineers have contributed to it, resulting in an institutional grade algorithmic trading platform that gives retail traders the same advantages of large firms; such as high resolution data across multiple sectors, fast cloud-based backtesting and the ability to pull in powerful mathematical libraries for your analysis,” he said.

FinanceFeeds opined that the choice to partner with OANDA Corporation is interesting, bearing in mind that OANDA Corporation has a traditional approach to its trading and client-facing service, but also a very technology-led methodology with regard to research, development and design of end-to-end trading infrastructure.

Mr. Broad echoed this line of thinking, saying, “OANDA Corporation is indeed that — it provides a traditional and stable trading environment, but we respect its technologically-advanced ethos. It is led by technology development, has a very robust API, and an established OANDA Labs division. It was ideal to be integrating with them.”

Interesting innovation for OANDA customers wishing to use algos.

“One thing that we launched that is very exciting,” said Mr. Broad, “is a solution to a core problem that algorithm developers face to conduct proper backtesting.”

“Backtesting requires the gathering and maintaining of data. Exchanges are conservative with data but select partners including FXCM and OANDA have agreed to make data available for download. Through QuantConnect, you can download intraday data and use it in backtesting,” he said.

“In essence, we have committed ourselves to democratizing what was only really available to institutions and interbank desks. We have spoken to banks and hedge funds and, now that we are maturing as a technology solution, a lot of banks and hedge funds are coming to us to replace their own infrastructure, which, as per a recent discussion on a FinanceFeeds podcast, is solid, but in many cases completely outmoded and inefficient, hence the funds especially seek to install our open-source solution.” – Jared Broad, CEO, QuantConnect

“In summary, we consider OANDA Corporation to be forward-thinking, and our web-based algo trading platform is in line with this. We want to help retail customers design good algorithms and we’re building new technology to help them in this challenge. We consider this to be a good model that we are trying to spread throughout the global trading community.”

“We’re currently working on ways to facilitate the automation of risk management, analytics, execution and asset selection, and, in doing so, making it much easier for the wider population to design good algorithms,” concluded Mr. Broad.

Read this next

Inside View

Industry Leaders Share Insights on Framing Crypto Payments into FX Brokerage Business

While the allure of crypto payments is strong, caution is essential. The potential benefits in terms of speed, lower fees, and blockchain efficiency need to be weighed against the risks associated with cryptocurrency volatility. 

Institutional FX

FXSpotStream volumes hit 14-month high in November

FXSpotStream’s trading venue, the aggregator service of LiquidityMatch LLC, reported its operational metrics for November 2023, which moved higher on a monthly basis.

Digital Assets

Circle denies ties with Palestinian groups, TRON founder

Stablecoin issuer Circle has denied allegations that it facilitates funding for terrorist organizations.

Retail FX

CySEC hits operator of Titanedge, TradeEU with €90,000 fine

The Cyprus Securities and Exchange Commission (CySEC) announced that it has imposed a fine of €90,000 on Titanedge Securities Ltd due to shortcomings in their regulatory obligations.

Institutional FX

Cboe FX volumes retreats slightly in November 2023

Cboe’s institutional spot FX platform today announced its trading volume for the month ending November 2023, which took a step back after a strong rebound in October.

Institutional FX

Alpha Group seals Cobase majority acquisition

Foreign exchange service provider Alpha Group International plc (AIM: ALPH) has finalized its acquisition of Financial Transaction Services, operating as Cobase.

Digital Assets

TMNG Tokens Successfully Listed on MEXC Crypto Exchange

TMN Global proudly announces the successful listing of its native TMNG token on the MEXC crypto exchange, effective December 1st, 2023. This strategic partnership marks a significant milestone for TMN Global in the crypto space.

Institutional FX

Marex completes acquisition of TD Cowen’s PB business

London-headquartered commodities broker Marex has completed the acquisition of TD Cowen’s prime brokerage and outsourced trading business, which will be integrated into Marex’s capital market division. This division was established following the acquisition of ED&F Man Capital Markets in 2022.

Digital Assets

Talos introduces decentralized liquidity and onchain settlement with Uniswap and Fireblocks

“At the cornerstone of the DeFi ecosystem, Uniswap has the breadth of assets and depth of liquidity that institutional traders need. And to have this partnership powered by Fireblocks, a digital assets infrastructure provider trusted by some of the most renowned institutions, is very fitting.”