Shining light into darkness
Seeing Markets Better
with
Drake Howell Ltd
The Problem
Not seeing the wood for the trees is an old problem, made worse by torrents of data
Financial market traders are badly affected by the sheer quantity of data & its speed of arrival
This overwhelms human senses. A lot of time is lost to monitoring markets for chances & threats
Rushed decisions with poor outcomes are common, even among experienced market folk
Market data is multi-layered so solving this is hard. Current tools are not up to the job
Our Solution
Make 3D displays of related ranges of instruments to show the whole market ‘at a glance'
Animate these displays to reveal patterns & ripples
Automate market monitoring to relieve stress and make space for traders to think creatively
Develop new kinds of analysis, made possible by these animated 3D displays
Provide massive competitive advantage to users
After 30 years of R&D and experiments:
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Changes in the forward curve are a strong predictor of imminent price change
Shifts along the curve are clearly and easily seen as ripples and twists in the banner
This 3D cage shows 7 forward crude prices in a horizontal strip, animated in a loop
Display 1 - 3D forward markets, animated
Constant focus on this is vital, but it takes up a lot of time and is stressful for traders
New insights, plus much reduced need for monitoring confers competitive edge
Display 2 - Option implied volatility in animated 3D
Reveals the rhythms & ripples in Vol that are always present - a transformative advantage
These Vol calculations are often displayed in a horizontal surface array... but static
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Options are valued by calculating the expected future volatility ('Vol') that is implied by the current option price:
This Vol surface is animated, refreshing each period - whether weeks or micro-time
Trading options is difficult - many moving parts - arrays of options are always large
'Vol' high = expected busy. 'Vol' low = expected quiet
Option movements have not been viewable with their futures before - this is a revolutionary change
Display 3 (Advanced) - combined Options & Futures
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The futures banner flows from back to front thru the shifting Vol array. All is seen at once
These rings are fixed on the x/y axes in vertical sheets. Each changes size as Vol rises & falls
CME Crude Oil options with futures
This display needed a single common axis so the option 'Vol' array flipped through 90°
Previously thought too difficult, this is a game-changer for market-making and arbitrage
The Vol array summary 'surface' has also been swapped for rings, to show each option's Vol
Here 11 elements of the US Treasury yield curve are updating 'live' in 3D
AI, trained on this 3D data set, produces confidence bands for the likely direction of the next interval
The aim is to produce firm predictions - in the case of the 3rd run, downwards
New kinds of analysis 1 - Yield curves with AI
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There is more market information in a full curve of yield maturities or forward prices than in just one value
The attributes of AI are well-suited to interpret this densely packed info
Results…
Average traders will be better and the best will be unbeatable
Data for these displays can come from any suitable source, so users will have wide breadth
3D Animated displays transform traders' view & alleviate stress from repetitive market scrutiny
New types of 3D analysis are already completed - we have barely scratched the surface here
With better insights and time to think, traders can choose only the decisions that should be made
And so...
This leads to a new marketplace
- Swaps can be compared with strips; with options & swaptions; Vanilla compared with Exotic; exchange-traded with OTC
- Showing Multiple data sources in moving 3D enables side-by-side derivatives comparison
- Such a comparison-based market should capture a large share of derivatives trade
- Price comparison always leads to trading, and the creation of a marketplace
- Their merits can be quickly compared and contrasted even in dynamic markets
This is a virtual space
Where traders gather
View custom derivatives' components
Bid for & offer complex products
Which will tighten price spreads
And so increase trading volumes
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The Mercantile Exchange meets Fortnite
4D views make Comparison into a Marketplace
In conclusion:
- Trading is easier and better for anyone who has these tools
- Innovative market data displays make many new things possible
- Analysis and comparison also gets much easier, so trading between users is a logical next step
- A full marketplace for commodity and fixed-interest derivatives is the likely end-game
- In the interim, it will be easy to make trading possible between users of the first 3 displays
Clearer market view
By Richard Edwards
Clearer market view
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