Knight’s pairs trading capabilities include access to Knight’s liquidity in addition to displayed and dark markets using FAN technology; easy-to-use front end to improve the trader experience; flexibility for traders to create their own strategies; support for complex pairs trading strategies, including multiple combinations of single securities, inverse pairs and set-up and unwind functionality in a single pair; low-latency, high-volume capabilities through server-side architecture vs processing via the front-end.
Traders use pairs trading strategies to capture the spread between two or more related securities, keeping risk low by remaining market neutral. Knight has combined pairs trading capabilities with FAN, Knight’s aggregation technology that sweeps and posts orders simultaneously in displayed and dark markets.
FAN employs smart order execution technology to adapt to real-time trade executions and re-circulate an order to destinations where trade executions will be taking place.
Knight’s pairs trading and algorithmic suite will be available through Knight Direct EMS, a broker-neutral electronic trading platform covering multiple asset classes, via a direct FIX connection, or major OMS and trading system providers.
Knight Direct claimed that its EdgeTrade strategies empower clients to maintain market anonymity and reduce overall transaction costs, while achieving their trading objectives. The agency smart order execution strategies leverage real-time and historical data to help clients execute orders by seeking out available liquidity among fragmented displayed and non-displayed markets.
Solutions include FAN, Oasis, Covert and Sumo. Knight Direct also offers VWAP and participation algorithms. The EdgeTrade algorithmic suite is offered through Knight Direct LLC and Knight Equity Markets, L.P., members FINRA & SIPC and subsidiaries of Knight Capital Group. The Knight Direct EMS(TM) is offered through Knight Direct LLC.
Joseph Wald, managing director of Knight Direct, said: “The market environment in 2010 is ideally positioned for pairs trading strategies. After the turmoil of the last several years, investors are more interested than ever in managing risk by taking a market neutral approach while residual uncertainty remains.
“At the same time, merger and acquisition activity is expected to continue to rise due to a reinvigorated investment banking market, while robust issuance of preferred stocks has created more opportunities to pair preferreds with their common stock counterparts. Knight has the algorithmic pair trading technology to help institutional traders make the most of these opportunities.
“One of the greatest challenges in executing pairs is that the market can move away in the time it can take to find liquidity in the multiple securities included in a strategy. The application of FAN to pairs trading helps locate disparate liquidity quickly and anonymously, improving the likelihood that an execution can take place and those strategies can be completed to a trader’s satisfaction.”
Knight Capital Group is a global capital markets firm that provides market access and trade execution services across multiple asset classes to buy- and sell-side firms.
