Automated Trading System – Internal Order Matching

Most automated trading systems (ATS) are built such that there are little to no interactions between component models. This is limiting. Here I am referring to a trading system as the overarching architecture that houses multiple individual models.

Without interactions, each model is operating within an environment that it is preconceived in. For example, mean reversion can happen in different time/event frequencies. A model that is parameterized to take advantage on certain frequency will not have knowledge of others.

One component within an ATS that is rather complicated to architect is the order management system. The OMS is the component that handles all order requests generated by the prediction models. It must always be aware of outstanding orders (limit/market, etc), partial fills, and proper handling of rejects,etc. Now the complexity is increased when a portfolio of prediction models all generate an order for a given tick. (Which should be processed first?)

The general rule of thumb in dealing with this is to aggregate all orders by asset to reduce transaction costs. If there are a mix of long/shorts, the net will be the final order quantity. When it is filled, simply dis-aggregate them back in to component fills to the respective models (internal matching). The annoying part, in my opinion, is when you introduce multiple order types. For example, Limit and Market orders. How would one architect the OMS to handle both? Hmm.. This goes back to the debate of the degree of coupling between the strategy and the OMS itself….

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