Author Bio

What better way to kick off the new month than with an awkward tech belly flop right in the middle of the New York Stock Exchange hustle and bustle? I really can’t seem to think of one.

Bright and early on the morning of August 1^st, Knight Capital, one of the few select members of designated market makers (DMMs) for the NYSE, experienced some “technical difficulties.” Now everyone knows that when this stigmatic term is spouted off in any situation, it’s generally never a good sign – especially when it comes to a DMM for approximately 675 securities being traded on the NYSE.

In an end-of-the-trading-day recap released by MarketWatch, it was reported that Knights technological issues were allegedly causing erroneous trades to be placed on about 140 different securities, some of which were stalwarts on the equities front.

NYSE employees caught their first suspicious whiff of volatility at around 9:30 AM, which provoked both human interventions, as well as automated stop losses called “circuit breakers,” to be triggered. Though the Knight Capital tech spasms did manage some damage during their 45-minute stint, luckily no malfunction contagion escaped beyond the company’s market making unit.

The traditional image of utter chaos ensuing on the NYSE trading floor represents something different than we’re seeing now: actual humans matching buy and sell orders. Today, those orders are primarily all being executed electronically, which unfortunately leaves them susceptible to programming glitches. The repercussions from this don’t materialize so much in the tangible losses investors have suffered, but rather, in the toll they’re taking on investor confidence. After witnessing the Dow flash crash of ’10, the glitches devastating the BATS Global Markets and Facebook IPOs, and now, this algo blunder, its no surprise investor wariness is a concern.

It almost seems as though innovation has gotten a little too ahead of itself. Grandiose ideas are incepted, and technology is there to make them reality – sometimes even before all the glitches can be discovered and properly worked out. However, these issues are not unavoidable; all it takes is the right combination of innovators.

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Be sure to read the full risk disclosure before trading Forex. Please note that Forex trading involves significant risk of loss. It is not suitable for all investors and you should make sure you understand the risks involved before trading. Performance, strategies and charts shown are not necessarily predictive of any particular result. And, as always, past performance is no indication of future results. Investor returns may vary from Trade Leader returns based on slippage, fees, broker spreads, volatility or other market conditions.

Author Bio

Last week the gentlemen from the Trade Leader Adantia did a webinar in which they talked about their approach to the markets. Chances are, most of the folks who were listening in realized that the Adantia strategy isn’t one that can be replicated by the vast majority of investors. It requires considerable amounts of research and technical ability in the area of things like genetic algorithms and massive computing power to run all the modeling calculations. Even still, to my mind there were a couple of different things listeners could take away from the discussion.

Diversification of Approach
I have written before of what I call diversification of approach or methodology. This is the process by which a portion of ones trading or investment funds are traded in one or more different ways than one’s primary funds. I don’t mean stocks vs. bonds, or anything like that, which is diversification across markets or sectors. I mean the system or strategy underlying the trading process is totally different. This is something that can be done within the context of a single market, or across multiple markets for multi-dimensional diversification.

One of the major benefits of the Trade Leader system is the ability to diversify across trading approaches. Since the Trade Leaders use different methods and systems for their trading, many of which are not well correlated with each other (never mind other markets like stocks), there exists the ability to develop a well-diversified portfolio within the group so as to avoid having exposure to just one approach which may suffer from poor performance under certain market conditions.

Diversifying Your Approach
I noted that Adantia’s specific approach to trading is well beyond the ability of most traders and investors to replicate. Their basic philosophy is relatively easy to understand, though. Adantia uses a mean-reversion strategy in which it plays for reversals of market moves rather than continuation of them. It can be thought of as being an over-bought/over-sold strategy as opposed to a trend following one.

Understanding the basic approach of each Trade Leader presents the opportunity for you to exploit the markets in ways that your trading does not. If you are primarily a trend following type of trader, then a Trade Leader like Adantia can add a dimension to your portfolio by taking advantage of non-trending markets. Similarly, if you are a US time frame day trader, then an Asian time frame based Trade Leader would give you exposure to part of the day you can’t trade yourself.

This is the whole point of multi-dimensional diversification and it’s something that could benefit a lot of different types of traders and investors.

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Be sure to read the full risk disclosure before trading Forex. Please note that Forex trading involves significant risk of loss. It is not suitable for all investors and you should make sure you understand the risks involved before trading. Performance, strategies and charts shown are not necessarily predictive of any particular result. And, as always, past performance is no indication of future results. Investor returns may vary from Trade Leader returns based on slippage, fees, broker spreads, volatility or other market conditions.