JP Morgan has launched Aqua for Futures, an algorithm designed for trading in the futures market that will use post-trade analysis to help users trade a wide range of contracts more effectively.
Peter Ward, global head of futures and electronics options trading, said the launch reflected the evolving execution requirements of the buy-side “Aqua is a strategy born out of client demand for more sophisticated execution tools, specific to the nuances of the futures market,” he said.
Ward added: “Coupled with the release of Aqua is the launch of our trading analytics suite on J.P. Morgan Markets.
“Clients can assess cost scenarios ahead of the trade and dissect trades afterwards to understand contribution to slippage. Transparency is key for us, to keep improving the strategy and for clients also, to understand where the biggest challenges are and adjust parameters accordingly.”
Aqua has been around for some years on the equities side. According to Ward, its value proposition in the futures market is different, despite the same branding and underlying principles.
“The technology framework is the same as we use in equities, but the models that go into it are designed and calibrated for futures,“ he added.
“The focus on the equities side is on trade scheduling and aggregation of liquidity across ‘lit’ and ‘dark’ venues. The focus on the futures side is more about the trading characteristics of each different product. For example futures in eurodollars, treasuries, heating oil and FTSE contracts all have very different profiles. In addition there are other considerations in futures absent in equities - trading behaviour around expiries, day versus night sessions, and front-month versus back-month contracts.
“Our aim is to present something that is simple on the outside but underneath it is calibrated for each product.”
The central idea is to take one algorithm, and underneath calibrate it for each particular type of futures contract, with a view to reducing trading costs.
Ward said that electronic trading had made big strides into many asset classes, but in futures just 20% of large institutions’ business was traded with algorithms.
Ward said, “Part of the reason is the lack of suitability of the current offerings on the street.”
“We have built Aqua as a strategy that is tuned to the microstructure and trading behaviour of each different futures product.”
Ward said the product was aimed at CTAs and large institutions active in futures looking to “take a chunk off” opportunity costs.
He said, “The opportunity lies in the fact that there are challenges to trading many futures coupled with a lack of agile strategies coming from either software vendors or brokers.”