How Do Synthetic Orders Simplify Trader Workflow?

Dariush HessamiQuod Insights

Exchange displaying Quod's multiple emulation capability to configure trader order parameters based on any order type

19th November 2020  |  Quod insights
How Do Synthetic Orders Simplify Trader Workflow?
Synthetic orders is the ability to emulate TIF / behaviours / order types for venues which do not natively support them. This critical capability reduces rejections, simplifies trader workflows, and speeds execution. How does Quod’s system support traders in improving their trading through synthetic market order strategies?

The increasingly complex world of rules, supported order types, and restrictions by exchanges has become a minefield for traders and automated trading.

Client orders will rarely account for whether or not an order type or functionality is supported on an electronic exchange or meets specific exchange requirements, and the various specificities of the exchange, for the order to be accepted.

In a real market context, venues will support a variety of native order parameters differently, so challenges arise when creating child orders because the parameters of parent orders cannot always be passed on, for example.

When one of the parent order parameters is not natively supported by the specific venue, the child orders that inherit the same parent order parameters cannot be sent to the venue, otherwise it will be rejected.

Examples of order parameters:

  • Validity (TIF - time in force)
  • Minimum or Maximum order sizes (iceberg)
  • Specific order types such as GTC / GTD
  • Kill or fill order

Reduce Rejections - Simplify Workflows

The synthetic order configuration simplifies executions by automatically adjusting a behaviour or order type that would otherwise be rejected, into an equivalent emulated behaviour that will not - through configuring each individual parameter associated with each trade order.

As well as reducing rejections, it enables the support of different non-native order parameters on all venues such as Icebergs, stop, trigger orders etc.

By removing responsibility of the client or the broker to send the correct message there is an immediate gain in efficiency across all trade workflows and processes. This frees up trader time for more complex trades and improving client relationships.

As customers trend towards automated solutions, the highly complex environments are requiring traders to achieve more with their time. Unnecessary rejects can impact benchmarks, profitability, as well as consume valuable time.

The Emulation Process

  1. Identifying the parameters of the order that need to be synthesized
  2. Selecting equivalent behaviour within the Smart Order Router (SOR)
  3. Determining which trade order parameters best match
  4. Managing the lifecycle of the order as slices are regenerated or modified
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Example of unsupported order types requiring synthetic order configuration on an exchange

wdt_ID Order Type Day GTD GTC IOC FOK Open Close
1 Market Y Y Y Y Y Y Y
2 Limit Y Y Y Y Y Y Y
3 Stop Y N N N N Y Y
4 Stop Limit Y N N N N Y Y
5 Iceberg Y Y Y Y Y Y Y
6 Min Exec Qty N N N N N N N
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