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Technical risks in system trading [updated]

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In system trading there are still plenty of technical risks. If you use your own mechanical trading system and autotrade it from Tradestation, the chances are that it will run reliably. Even Tradestation got to this level only in the recent years and was prone to mistakes earlier.

However, once you decide to buy trading signals from a system vendor, you’re exposed to a plethora of technical risks. In terms of reliability system trading support applications are probably where banking software was 15 years ago or worse.

Most of the problems take place in trader-to-server part of the process and are not visible to customer. Much less problems are in server-to-broker routing and such problems are easily detected by the customer. Like in this example given below:

20090603

EURUSD trade placed with 33 pip stop trades at 80 pip loss and the stop is not activated. [Update: Ultimately the trade is booked correctly with 33 loss and the only failure seems to be to remove the trade from open positions log. Confusion is better than hard loss, but the situation leaves lingering doubts about the reliability of the system.]

Conclusions? Any major fully automated system trading operation still needs to be supervised. If no supervision, allocate reserves for technical risk.

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Written by A.S.

June 3, 2009 at 10:22 am

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