Adam Sheldon has been trading futures for years, but a couple years ago, he decided to create Chicago-based Bionic Trader Systems to build trading software that works with a customizable keyboard. The result, he says, is a system that he developed which allows him to compete with algos using the speed of the system and the discretion of a human trader. His new product, Keyboard Trader, was launched this month. Sheldon spoke with JLN’s editor-in-chief Jim Kharouf about his new company and new product.
Q: Let’s start with your company. Why did you start Bionic Trader Systems?
A: It’s more of a personal story, turned into a business. Like every other trader, you have to make a choice as to whether you are going to go algorithmic, get another job, or change your plan. For me, I have a programming background but I didn’t want to do algorithmic. I thought there was value in human discretion that I didn’t want to automate. I built some trading tools that helped me trade faster and more intuitively. It just fed off itself and I took that approach for a number of years. Being a manual trader, eventually I became frustrated that trading software firms have only built new tools to support algorithmic trading over the past decade. But no one has been helping the manual trader trade better and faster. I became determined to change this.
Q: How long did it take you to develop your product?
A: It took roughly 2½ years.
Q: Your company has one core product – Keyboard Trader – how does it work?
A: Keyboard Trader is a software system that helps traders remove human latency. It offers traders powerful ways to automate some of their trading methods, while still allowing them to maintain their human discretion. When you are ready to act, it can help you execute your trades and other trading functionality very quickly. People see the value when they see the full hour-long presentation and really go through it. They have a hard time picturing it in the elevator speech.
Q: How do you configure/customize a keyboard for customers?
A: We’re just starting to meet customers now. You find out where they have their pitfalls, where they are having problems executing. Then you sort out areas where they should maintain their current approach and areas where they could use some help using Keyboard Trader. Then we build a keyboard that can help them.
The most obvious split for a lot of people is portfolio-level trading. Most people are used to executing rapidly on one product. But there is a lack of portfolio management tools that can execute on multiple products at one time. This can help them manage everything in their portfolio in their left hand with quick trigger buttons and still let them manually use their mouse with their right hand side.
For example, you have a basket of agriculture and metals contracts you want to execute. You don’t want to combine these into one because there are crop reports that are separate from say, when Ben Bernanke is speaking. So you might have an order entry method for ags and a separate for metals. You basically find out what each person wants and the keyboard mirrors what they want in their mind.
Q: There are still a lot of point-and-click traders in the market. What is the benefit for them?
A: The most obvious is the portfolio management. I continue to run into traders who manually execute trades with their mouse but they don’t have tools to perform portfolio-wide functionality. If you give them a keyboard for their left hand, it’s easy to help them.
For a click trader just trading one or two products, it’s a little less obvious. But if you think about it, if you trade with a mouse there is only one hand that you use and there are only one or two buttons you use. So if you show a keyboard to these traders for them to perform some more methods with their other hand, something stable and intuitive, they may want to consider it.
I had people say “I didn’t think this would make sense.” But then they used the keyboard with their left hand, they keep saying it is more intuitive than they expected and it can definitely help them trade faster. To keep it simple at the start, you could add just a few keys on a keyboard and that would enhance your trading one product. It takes practice in simulation to make sure it works for you.
Q: Algo trading represents a large and growing percentage of trading volume on equities and derivatives exchanges. How can Keyboard Trader address that competition?
A: Let me step back a bit. For the average human trader, their edge is timing. With the automation this product offers, traders can trade “in the now” as opposed to being a step behind. This product helps you maintain your timing edge.
Back to your question, at this point after how many years of algo development, I’d say algos are competing more with themselves than with manual traders. Manual traders have changed their time horizons.
Ten years ago, when you saw someone offering a lot of contracts, you could pick it off at your leisure. You can’t do that anymore. This software gives you some of that timing back. You won’t have the same nanosecond trading ability as algos but they don’t have the human discretion a manual trader will.
As a manual trader watching the markets all day, I can see some patterns. The algos have become predictable just like humans have become predictable. I watch them and see that when they are selling below a certain level, it’ll be a false move down, and then it’s going to go right back up. So I don’t know that its changed that much, other than you have to be a bit faster.
On the other side of the coin, not only do algos take opportunities away from manual traders but they also create them. First, algos generally add volume to the market and liquidity. And often they are not trying to execute, but are trying to perform price discovery in the market, by artificially moving it one way or the other, which is not easily supported by any other condition that would justify it. So if you pay attention and can tell what the real moves are, and which are just algos pushing it in one direction or another, you can call their bluff in certain circumstances.
Q: There is a risk management component to the technology. How does that element fit in?
A: Most futures brokers assign one position limit to customers, which is the same total for the long and short sides. I always thought traders would prefer to have both a long and a short limit. Keyboard Trader allows you to assign limits to both sides. Secondly, most brokers say that even if you hold the overnight position, its not going to change the limit on what you can buy or sell the next day. You will not be able to risk adjust it for the overnight position you carry. So Keyboard Trader allows you to risk adjust so you can reduce your buying power on the same side of the market as your overnight position, and increase your buying power the opposite side of the market as your overnight position.
You are only able to do this because in Keyboard Trader you are able to assign and adjust “Position Boundaries” locally on your workstation. “Position Boundaries” is a term I came up with to convey a more flexible type of position limit. You can adjust the position boundaries in a variety of ways, but in no cases will they increase past your broker’s position limit.
Q: What is next for Bionic Trader Systems?
A: The most important thing is just connecting with traders, finding out what they need, and finding ways we can help them. And we will continue to look for things we don’t have and try to provide it for them.