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Investment
June 2019 www.intellinews.com I Page 13
each financial instrument so the total position of all bots in each instrument can’t exceed a certain limit. All the deals are recorded on twin servers to provide a back up in case of power outages and every part of the system has a back-up and recovery plan.
Into the cloud
Algorithmic trading is developing fast and riding the way of technological development. A few years ago any algo fund would have had to spend upwards of $1mn on expensive fast computers that were able to analyse big data, plus the costs of constant upgrades and the IT support staff. The barrier to entering the business was high so that only the institutional investors could afford to play.
Today its possible to tap the same computer power that is now hosted in the cloud, which has reduced the entrance ticket price to one that smaller funds can now afford. ITI Funds’ mathematicians use al- gorithms that are tested on historical data and then fine-tuned, the so-called “walk-forward optimisa- tion.” Those algorithms with the best operational results are then added to the trading system. The whole system is updated quarterly to reflect the changes in the underlying market over time.
This is not a high frequency trading (HFT) strategy, although HFT does use algorithms. It is another form of algorithmic trading where our bots
only trade once every two days on average. The positions build up slowly as they follow “the trend that is your friend,” as the adage goes.
Algorithms are constantly looking for a good moment to enter the market when it will take either a long or short position, investing a small amount of money. The leverage on the investment will depend on the volatility of the market at
the time: the lower the volatility, the higher the leverage, up to a maximum of x15 for exchanges and x3.5 for cryptocurrency exchanges.
“ITI Funds trend strategy is currently operating on two global exchanges and on two cryptocurrency
exchanges. It is the same strategy adjusted to market specifics of course. We’ve been testing the strategy on more than 100 financial instruments and finally chose a few to work with. It is a part of our risk-management system, too. We use only futures with maximum liquidity. So whenever our client wants to stop the strategy we can close the positions immediately,” Baranoskaya said.
Diversity of products
The algo platform can be adapted to invest into any sort of asset. ITI Funds also offers various bond fund products that traded in much the same way.
A client opens a brokerage account in his name and can purchase a portfolio of liquid bonds such as the ITI Funds Eurobond ETF called RUSB.
The algorithmic trend-following program is then connected to the investor’s brokerage account. The bonds continue to generate coupon income that simultaneously acts as collateral for orders sent by the algorithms to buy or sell financial instruments. Investing in the strategy does not require the transfer of funds to a third-party asset manager. The algorithms only have permission
to perform trading operations, but the right to withdraw, or transfer funds, remains exclusively with the investor, who can monitor the strategy in real-time and halt it at any moment.
Having said all this trend strategies have their pros and cons. During periods of stability ITI Funds trend strategy does not produce big returns, but in times of volatility using a trend algorithm comes into its own.
“These strategies work best when the market is vol- atile. If the market is moving the algorithm doesn't care which direction it is moving in; it just capitalises on the movement,” says Baranoskaya. “Then an algorithmic trend strategies can outperform clas- sical investment instruments. The high risks of a correction or market collapse, low yields on bonds, and uncertainty in commodity prices and foreign exchange markets all hurt classic instruments. But they work in the trend strategies’ favour.”