21-07-2012, 02:36 PM
MOBILE TRADING COMES OF AGE
[attachment=28357]
The context
There is now widespread agreement that hedging with futures and options makes hedgers better off. It allows them to make a more rational use of their cashflows; to capture available business opportunities; to avoid disaster scenarios; to concentrate on their core business rather than spend time trying to guess where markets are going; and makes them less risky propositions to financiers and thus more apt to obtain good credit conditions. These benefits should be largest, in relative terms, for those who have the least ability to absorb risk – most notably, the poor. Some studies have found that poor farmers, unable to externalise their risks to hedging or insurance markets, instead adapt their production patters to reduce their risk exposure, resulting in a decline in average income of at least 20 percent.
Ironically, those who most need to use futures and options have no access to the markets that offer these instruments. In recent years, the international community (particularly UNCTAD and the World Bank) have given increasing attention to this issue, looking for ways to bring futures to the farmgate. The traditional solution is to look for organizations that can aggregate the risk management needs of individual small farmers, notably cooperatives, processors and rural banks, and teach them how to use these tools. But unfortunately, institution-building is a slow and difficult process, and institutions worth strengthening are still relatively scarce on the ground.
Today’s question
Four years ago, when mobile trading was discussed, the issue was whether trading equities and derivatives contracts using mobile devices was even technically feasible. Three years ago, the issue was how long it would take to bring to market. Two years ago, the issue was how expensive such trading would be. Last year, debate surrounded which devices, software and companies would be first to market. Today at Burgenstock and around the world we take the technology for granted, we assume that prices for wireless services will continue to fall and that a competitive marketplace in the provision of these services will emerge. The question now is, what will be the market penetration? What percentage of existing contracts will end up being traded on mobile devices?
M-commerce is gaining ground
It is no longer practicable to discuss the use of a particular technology for risk management without placing it in its wider context. The Economist suggested last year that a consensus prediction from market research firms and consultancies would be that the number of mobile internet users will be around one billion in 2005, compared to somewhat over 200m in 2001 and double that in 2002. Millions of SMS are now sent every day. And let us remember that forecasts during the 1990s have been overtaken by events. What seems certain is that even allowing for the late arrival of the much vaunted new 3G technologies , it will not be long before the number of internet connected mobile devices exceeds that of PCs.
Wireless technology is improving
Meanwhile wireless technologies are advancing apace to cope with the widening marketplace. Security over wireless, too, is improving. Most mobile phones in use today are 2G, which can provide limited data services such as text messaging and Wireless Access Protocol (WAP) browsing. WAP has been widely accepted as a failure due to its slow access speed (as low as 9.6 kps bit rate), limited applications (and no killer applications), and poor handsets. But WAP is already yesterday’s technology. Carriers are gradually investing in digital third-generation (3G) networks with their facility to increase data speeds (eventually to 2Mbps and beyond) and widen bandwidth, as well as providing greater compatibility and wider coverage, voice recognition and better handwriting acceptance technologies. These networks are expected to take care of the limitations associated with second-generation (2G network). Equally welcome is the Open Mobile Alliance, which aims to grow the market for the entire mobile industry by enabling subscribers to use interoperable mobile services across markets, operators and mobile terminals.
Mobile trading systems
A decade ago only a top of the line Sun Workstation on a 100 Mbit Local Area Network or its equivalent would have been regarded as the minimum IT even for the lowest level of traders. Even today this is the reality for many traders in many trading rooms and these traders are effectively shackled to their trading desk for 9 hours a day barely able, or daring, to leave in case something happens. However, trading and trading tools are evolving rapidly to take advantage in the growth of electronic trading, the emergence of new electronic exchanges and the improvement of the capabilities of hardware and communication technology as well as the development of increasingly sophisticated software.
The range of mobile trading tools that have been launched have often failed to deliver on all these points. This was unfortunately the case with first generation WAP applications which are cumbersome, slow and unfamiliar to the traders or user. Functional trading tools were not possible due to the limitations of the devices and communications until the last 6 to 12 months. Patsystems until recently produced a fully functional trading system on a large screen Hand-Held device. Although these were very useful in the pits of floor based exchanges, they were heavy and suffered from many defects such as: short battery life, poor screen visibility, high cost, heavy weight and fragile construction. They therefore only appealed to the dedicated professional trader who needed to be in contact with other markets. Mobile devices have also both more fragile and less reliably connected to the Exchanges than desk-bound terminals which means that should the device become disconnected, forgotten, low on power or unable to trade for a variety of other reasons a back-up trading route has needed to be immediately available.
[attachment=28357]
The context
There is now widespread agreement that hedging with futures and options makes hedgers better off. It allows them to make a more rational use of their cashflows; to capture available business opportunities; to avoid disaster scenarios; to concentrate on their core business rather than spend time trying to guess where markets are going; and makes them less risky propositions to financiers and thus more apt to obtain good credit conditions. These benefits should be largest, in relative terms, for those who have the least ability to absorb risk – most notably, the poor. Some studies have found that poor farmers, unable to externalise their risks to hedging or insurance markets, instead adapt their production patters to reduce their risk exposure, resulting in a decline in average income of at least 20 percent.
Ironically, those who most need to use futures and options have no access to the markets that offer these instruments. In recent years, the international community (particularly UNCTAD and the World Bank) have given increasing attention to this issue, looking for ways to bring futures to the farmgate. The traditional solution is to look for organizations that can aggregate the risk management needs of individual small farmers, notably cooperatives, processors and rural banks, and teach them how to use these tools. But unfortunately, institution-building is a slow and difficult process, and institutions worth strengthening are still relatively scarce on the ground.
Today’s question
Four years ago, when mobile trading was discussed, the issue was whether trading equities and derivatives contracts using mobile devices was even technically feasible. Three years ago, the issue was how long it would take to bring to market. Two years ago, the issue was how expensive such trading would be. Last year, debate surrounded which devices, software and companies would be first to market. Today at Burgenstock and around the world we take the technology for granted, we assume that prices for wireless services will continue to fall and that a competitive marketplace in the provision of these services will emerge. The question now is, what will be the market penetration? What percentage of existing contracts will end up being traded on mobile devices?
M-commerce is gaining ground
It is no longer practicable to discuss the use of a particular technology for risk management without placing it in its wider context. The Economist suggested last year that a consensus prediction from market research firms and consultancies would be that the number of mobile internet users will be around one billion in 2005, compared to somewhat over 200m in 2001 and double that in 2002. Millions of SMS are now sent every day. And let us remember that forecasts during the 1990s have been overtaken by events. What seems certain is that even allowing for the late arrival of the much vaunted new 3G technologies , it will not be long before the number of internet connected mobile devices exceeds that of PCs.
Wireless technology is improving
Meanwhile wireless technologies are advancing apace to cope with the widening marketplace. Security over wireless, too, is improving. Most mobile phones in use today are 2G, which can provide limited data services such as text messaging and Wireless Access Protocol (WAP) browsing. WAP has been widely accepted as a failure due to its slow access speed (as low as 9.6 kps bit rate), limited applications (and no killer applications), and poor handsets. But WAP is already yesterday’s technology. Carriers are gradually investing in digital third-generation (3G) networks with their facility to increase data speeds (eventually to 2Mbps and beyond) and widen bandwidth, as well as providing greater compatibility and wider coverage, voice recognition and better handwriting acceptance technologies. These networks are expected to take care of the limitations associated with second-generation (2G network). Equally welcome is the Open Mobile Alliance, which aims to grow the market for the entire mobile industry by enabling subscribers to use interoperable mobile services across markets, operators and mobile terminals.
Mobile trading systems
A decade ago only a top of the line Sun Workstation on a 100 Mbit Local Area Network or its equivalent would have been regarded as the minimum IT even for the lowest level of traders. Even today this is the reality for many traders in many trading rooms and these traders are effectively shackled to their trading desk for 9 hours a day barely able, or daring, to leave in case something happens. However, trading and trading tools are evolving rapidly to take advantage in the growth of electronic trading, the emergence of new electronic exchanges and the improvement of the capabilities of hardware and communication technology as well as the development of increasingly sophisticated software.
The range of mobile trading tools that have been launched have often failed to deliver on all these points. This was unfortunately the case with first generation WAP applications which are cumbersome, slow and unfamiliar to the traders or user. Functional trading tools were not possible due to the limitations of the devices and communications until the last 6 to 12 months. Patsystems until recently produced a fully functional trading system on a large screen Hand-Held device. Although these were very useful in the pits of floor based exchanges, they were heavy and suffered from many defects such as: short battery life, poor screen visibility, high cost, heavy weight and fragile construction. They therefore only appealed to the dedicated professional trader who needed to be in contact with other markets. Mobile devices have also both more fragile and less reliably connected to the Exchanges than desk-bound terminals which means that should the device become disconnected, forgotten, low on power or unable to trade for a variety of other reasons a back-up trading route has needed to be immediately available.