Hedge Funds That Did Not Invest In Tech Stand To Lose Big As Traders Forced To Work Remotely

potential latency into functions quarantine violations Coronavirus panic Free Testing voluntary quarantineTerriAnneAllen / Pixabay

With the increased volatility on the market, there is an amplified focus on trading technology. Chris Jenkins, managing director at trading execution platform Tora provides the following insights on the different models being used by firms as traders are being forced to work from home, adding potential latency into functions and still cope with unprecedented activity.

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Traders Forced To Work From Home

Tora’s order and execution management system is relied on by dozens of the world's largest hedge funds, asset managers and investment banks. Some of Chris’ thoughts at this time:

  • Companies have invested in new technology, but many traders are being forced to whether this crisis at home with their laptop.
  • For those with systems totally in the cloud this may be suitable, but for those with partial enterprise/physical systems, being offsite can mean big delays in executing orders. The problem is compounded by surging volatility across markets.
  • While circuit breakers can help, they are not in place in all markets.
  • The system so far is holding up relatively well, but there could be significant divergence between firms, especially between those adding potential latency into functions that can be latency dependent.
  • As the news flow and market is so intense, live market data is critical for traders. Seconds matter.

Losses Due To Coronavirus

Chris is based in Japan and he discusses the current market situation from an APAC, European and American perspective and about how firms that lag behind technology adoption stand to lose due to Coronavirus.

“The Covid-19 pandemic is, unfortunately, the first real world example for much of the global financial industry to test infrastructure improvements made over the last decade. Banks, hedge funds and asset managers have spent billions on new and more powerful systems, hoping to weather large spikes in trading volatility and/or volume.

However, not all firms followed the same approach to infrastructure updates. Those which opted exclusively for a cloud-based infrastructure have the upper hand as employees should have the same user experience whether they are in the office or in an apartment. All that is required is a computer and a reasonably fast broadband connection.

That said, it will be interesting to see how local broadband companies and conference call providers such as Zoom will handle the increased volume of users and constant high levels of activity.

Apps Adding Potential Latency Into Functions

Employees connecting to their company systems via virtual private networks or applications such as Citrix, are however crucially adding potential latency into functions that can be latency sensitive. This is job role dependent, so while the a few seconds won’t mean much to someone in the back office, it can be critical for traders dependent on live market data.

I was in Hong Kong in 2003 during the SARS epidemic at the time many firms didn’t really have a plan for dealing with a crisis of this nature. That’s not the case now.

Learning from lessons past, when the SARS epidemic hit Hong Kong in 2003, the city started to send people home from Chinese New Year and many people haven’t moved. There are thousands of people working remotely and working efficiently, showing a way forward even if governments expand restrictions. In the West, those firms with detailed plans should also see an easier transition to what could be the new normal for weeks or months to come.”

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About the Author

Jacob Wolinsky
Jacob Wolinsky is the founder of ValueWalk.com, a popular value investing and hedge fund focused investment website. Jacob worked as an equity analyst first at a micro-cap focused private equity firm, followed by a stint at a smid cap focused research shop. Jacob lives with his wife and four kids in Passaic NJ. - Email: jacob(at)valuewalk.com - Twitter username: JacobWolinsky - Full Disclosure: I do not purchase any equities anymore to avoid even the appearance of a conflict of interest and because at times I may receive grey areas of insider information. I have a few existing holdings from years ago, but I have sold off most of the equities and now only purchase mutual funds and some ETFs. I also own a few grams of Gold and Silver