Arbitrage Through Connectivity

Partnering with a next generation financial markets network to seize arbitrage opportunities: a five-step guide for independent proprietary trading firms.

Proprietary trading (also “prop” trading occurs when a firm trades equities, bonds, currencies, commodities, their derivatives or other financial instruments, with the firm’s own funds, and on its own account, as opposed to the funds of its customers, so as to earn a profit for itself. As prop trading firms seek a variety of arbitrage opportunities across a wide range of asset classes in increasingly fragmented markets, shortening time to market, lowering total cost of ownership and gaining efficiencies are vital to increasing profits. Recent regulation is also dramatically altering the landscape for prop trading. Additionally, independent prop trading firms do not have the luxury of being a part of a large sell-side firm that often has the resources to quickly create and deploy profitable trading models through technology. As a result, by leveraging the right type of connectivity, a prop trading firm increases opportunities for success in what is a hypercompetitive market.

This paper discusses how a holistic approach to connectivity can enable prop trading firms to successfully execute trades on a variety of liquidity venues, expand business to new asset classes and conduct arbitrage between execution venues. Connectivity solutions need to address the extreme demands of today’s prop trading environment. We will first examine the five key criteria that prop trading firms should employ when selecting a specialized managed network provider.