There has been a divide between discretionary trading where the trader analyzes data, trades and manages orders in terms of profit and risk manually compared with system trading, where a set of programmed rules (developed and back-tested) drive this process with little or no trader intervention. Recently, systems have evolved that allow a cross-over between system and discretionary trading to produce a hybrid of the two, so the trader gets the best of both worlds.
A gray-box or hybrid trading system provides the trader with automation for the mechanical parts of trading while allowing them to use their judgment (discretion) about trading decisions - so the system seeks to inform the trader of opportunities, and manages the trading of products, yet leaves the decision to use the recommendations to the trader. A key advantage to this nimble approach is that it levers the traders knowledge to the full so that they can react quickly to changing market conditions and maximize return on effective strategies.
This contrasts with a black-box system, which is fully automated (along with the associated high cost and long lead time to profit) and existing manual "click trade" order entry systems that have little or no automation.
In most cases, a gray-box system is implemented by providing the trader with a system, such as the KaiTrade Accelerator, that sits side-by-side with existing trade entry and charting packages to provide some level of automation and control - see the diagram below:
Some programming-savvy traders have also written their own systems using Excel and RTD provided by system vendors such as TT and Pats.
We are seeing increased demand from discretionary traders, who are now using powerful charting and modeling like CQG to generate automated signals to enter and exit trading scenarios.
The trader then uses the KaiTrade StrategyPad to connect and link the signals generated from CQG to strategies that the trader has set up. The trader can then choose which strategies to use depending on their view of the market conditions.The strategies can trade a range of products (futures, options, stocks), spreads and other multi-legs (synthetic products) the trader may set up. Crucially, they offer sophisticated order management, for example controlling risk using trailing stops and locking in profits.
The system evolves as traders identify the best patterns of trading that suit the markets they are interested in. They can apply these to a range of products automatically and free up time to find new markets and methods.
KaiTrade provides all the tools needed to bridge the gaps in existing systems, and let traders and organization start implementing gray-box trading quickly. Our mix of solid engineering and trading experience lets us deliver on our commitment to enable traders to "Trade Better" today and in the future.