Mexican broker-dealer Finamex has released a set of four opportunistic trading algorithms intended to allow users to gain arbitrage profits from trading US equities in Mexico.
“Some 20-30% of symbols in Mexico represent US stock and options,” said Dan Watkins, president at CC Speed, a division of New York-based business development and market services group Celeritas Consulting. “Often, by the time market information reaches Mexico from the US, it is out of date, putting Mexico-based brokers at a disadvantage. Finamex algos can help make sure Mexican traders stay ahead.”
The arbitrage algos are built to use theoretical quote pricing as the primary driver of behaviour, speed and momentum, responding to pre-programmed triggers to trade as soon as the situation is appropriate.
The algos consist of Hunter, Ghost, Scaled and Market-maker. Hunter seeks to take advantage of sudden discrepancies between the equities of foreign listed symbols in Mexico versus their originating market, i.e. NYSE Euronext or Nasdaq. The algo considers market data and adjusts itself to work within defined price spreads on Bolsa Mexicana de Valores.
Ghost is designed to lie dormant until a desired buy-sell signal appears with a non-previously indicated ask-bid price. At this point, Ghost executes against the signal. Both Ghost and Hunter are designed to recognise price opportunities, without revealing their users’ trading intentions.
Scaled works on a big spread definition, called a base. The algo reacts instantaneously when a lower spread, called the target, is satisfied on the other side. Unlike Ghost, the Scaled algo’s intentions are exposed; however the algo moves immediately when the target spread is satisfied.
The fourth algo, Market-maker, is intended to provide liquidity and act as a market maker within the local Mexican marketplace. The algo absorbs the last trade, adds and indicated spread and automatically places or replaces the order with an indicated quantity.
“We’re putting in place these free strategies for clients who want to access the Mexican stock market with an almost zero setup price,” said Hector Casavantes, head of electronic trading at Finamex. “We wanted to offer automated algo strategies in order to let investors know how active and easy this market can be to trade.”
Finamex already offers standard algos such as volume-weighted average price (VWAP), time-weighted average price (TWAP), implementation shortfall and POV. Global agency broker ITG launched its own set of algos adapted for the Mexican market, in September 2011.