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What happened to our real-time experiment?

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On June 1, 2010 we started a real-time experiment to illustrate how the system trading works and the profit potential of this type of investing.

We followed through for about 7 weeks before we diverted the resources to an income-producing work at hand. During those 7 weeks the results were mixed.

Overall, pure currency systems (Alpari PAMM, Tradency, Zulutrade) performed better than stock (Covestor) or commodity systems (Collective2). Since then, Covestor has redesigned its web site and the service offer looks more compelling than ever. The performance of Covestor models (i.e. strategies or trading systems) have recovered noticeably from last June. As at the time of writing, top-performing Covestor models are back on track with up to 55% returns during the last 3-month period (apparently, in line with the general market upward move).

Tradency has redesigned web site and now have the product offer directly from their web site rather than kept it obscured somewhere in brokers´ web sites. Collective2 and Zulutrade have kept their service offer basically unchanged, save for some non-essential features (such as additional languages and too-simple-to-be-useful analytic tools).

The basic premise of system trading is that, theoretically, a good trading system should perform well irrespectively of general market direction. In practice, most trading systems depend on certain market conditions, their performance is limited in time and it is critical to recognize and scale out systems whose ¨production stage¨ is over.

One of the conclusions to draw from the experiment is clear: constant monitoring and adjustment of the system portfolio is a must. Hardly any of the trading systems, originally included in the portfolio, pass the test 5-6 months later.

Namely,

On Collective2, out of 11 systems, 9 are down, 2 are up. The average decline is about 10%.

On Zulutrade, out of 15 systems, 4 systems are not identifiable, 6 are down and 5 are up. Average up is about 8% (not counting the unidentifiable four).

On Tradency, out of 6 systems, 2 are not identifiable, 3 are down and 1 is marginally up.

So, out of 32 systems, only 8 or 25% are good half-a-year later. The other 24 systems would have been removed from the system mix in the due course of the ongoing selection process.

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Sources of Trading Systems

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The ecosystem of automated trading develops fast. Capital allocated to system trading through industry leaders, such as Covestor or Collective2, reportedly grows by 50% annually.

There is still a plenty of room for growth as the investors ¨chop off the old block¨, i.e. disallocate the funds from chronically non-performing and increasingly risky traditional investments in stocks and bonds.

I here list 8 sources for you to choose as a provider of trade signals for your system trading account. Those sources are the ones likely to be used by both emerging system developers as well as investors.

Collective2
Collective2.com or C2 is an internet-based company. C2 collects performance data of various trading systems, independently verifies such performance data and makes the systems available to subscribers to trade in real-life trading accounts. At the time of writing there are about 7’000 trading systems registered on C2.
The way it works is — you go to C2 web site, register as a user, find a trading system which, as an example, shows 88% annual return, make a few clicks to set the system up to send the trades to your brokerage account and, if the systems lives up to the expectations, you have just arranged for an investment with 88% annual return.
C2 promotes itself as think of Collective2 as „do-it-yourself” hedge fund.
C2 works only with hypothetical data, although it checks all the signals in real-time and provides both estimates (slippage, realism factor) and tools for investors to evaluate what performance in live accounts would look like.

Covestor (and cv.im)
Covestor is one of the best-managed and innovative trading system aggregators.
Covestor displays performance data from live trading accounts and is limited to stocks only.

Zulutrade
Zulutrade deals with hypothetical forex signals only.
Zulutrade is probably the fastest growing of all system aggregators. It takes only a couple of minutes to sign up as a system vendor. Zulutrade is equally easy for investors as account opening procedure is straigthforward and easy with any of the selected brokers.
There are no fixed fees for neither system vendors, no investors. Systems can be added and removed from trading in live accounts with just a few clicks and at no cost. Fee for the services is pay-as-you go in form or bid-ask spread markup. Such spread mark-up (about 2 pips round-turn for the most liquid currency pairs) is then shared between Zulutrade and the system vendor.

Tradency
Tradency service is available through selected forex brokers, including several major retail brokers, such as FXCM.
Tradency system performance data is hypothetical rather than based on live account trade logs.

Fxbees
If you´re looking for system aggregator service for forex signals based on live accounts, then Fxbees.com is for you.

Myfxbook
Myfxbook positions itself more than a community of forex traders rather than system aggregator service provider.
Forex traders allow data from live forex accounts to be explained on Myfxbook website. Potential investors can review the data and contact the trader directly for signal delivery terms and conditions.

AlphaClone
AlphaClone compiles data about major equity positions from 200 major hedge funds and institutional investors from their public filings.
There is a time-delay involved as such public filings with SEC are made quarterly. If you feel comfortable to ¨clone¨ positions of, say Warren Buffet, this is the service to use.

Alpari PAMM
Alpari is a Russian-owned forex broker with operations in several countries, including UK and UAE.
Alpari customers may enable their live account performance to be available for public disclosure. If done so, the live account performance is ranked and any investor may open PAMM account to copy the trades of the most profitable traders.
The fees related to PAMM account are structured as performance fee. Under this arrangement, investor pays a share of profits as a performance fee and such fee is shared between the broker and the trader.

Source: free e-book Be Your Own Hedge Fund Manager.

Review: Tradency System Trading Service

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Tradency is a web based service to compile and verify forex trade signals from traders and route such signals for autotrading in live accounts.

Investors access trading system ranking and selection tools only through their broker web pages, but not directly from Tradency website.

There are more than 1800 single currency-pair systems available, as well as a pre-selected system packages. The customers may subscribe to any number of single currency systems by doing research themselves. Or, they may choose one of 19 Top Portfolio Packages. Each such package contains 2-5 single-currency systems bundled as a strategy (pls click the thumbnail for an illustration).

My first impression of Tradency service is as rather average in terms of user interface and content. However, integration of the service in brokers´ web pages is a major competitive advantage. Packages suit perfectly to customers who are happy with shortcuts and have no interest or qualification to select trading systems by themselves.

Written by A.S.

May 27, 2010 at 1:16 am

FXCM and Alpari Use Tradency Service For System Trading

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Somewhat disappointed to find out that FXCM and Alpari both use a trird-party solution for trading systems. My expectation was a compilation and ranking of trading systems from their own customer account information. Instead, they use Tradency.

However, Alpari has a separate managed account service called ¨PAMM-account¨. The service allows investors to follow trades from live accounts. The fees paid by investors to traders are structured as performance fee.

Written by A.S.

May 26, 2010 at 8:09 pm