What is Ready Trader One?

Introduction

The OPTI-ETF is launching and will soon list on the exchange. It tracks the OPTI-100 Index of major technology stocks from China and India. OPTI-100 Index Futures are already actively traded by professional investors, however, the ETF will be the first opportunity for non-professional individuals to invest in the OPTI-100 Index. The exchange wants you to be the designated market-maker for the OPTI-ETF.

How to play?

Building upon our initial code-base, you and your team will draw upon your programming and analysis skills to write an Autotrader to price the ETF, execute trades, and manage your risk on your behalf. We will provide historical time-series order and trade data of the OPTI-100 Index Future, which you can use to verify your pricing and trading algorithms. Your Autotrader (and those of your competing market makers) will trade on a simulated exchange full of would-be investors ready to get involved in the OPTI-100 index!

Rules of the game:

Fees

To attract market makers to their market, the exchange has agreed to provide incentives and services as described below. Each trade attracts a small fee paid to the exchange. In the Ready Trader One ETF market, the aggressor in a trade pays the taker fee, which is 2bps, or 0.02% of the value of the trade. To incentivise market making, however, the exchange pays the initiator of the passive order in the trade a maker fee – 1bp or 0.01% of the value of the trade.

Exchange Rules

The exchange has certain rules which all market makers must abide by. They are:

  • Wash trades are not allowed – all inserted orders that are in cross with an active order from the same participant will be rejected.
  • No more than 50 order operation requests (insert, cancel or amend) may be sent in any rolling one second period. If this limit is breached, the participant will be disconnected from the exchange for the remainder of the match.
  • A position limit of +/- 1000 lots is enforced. Exceeding this limit will result in the market maker being disconnected from the exchange for the remainder of the match.
  • An active order count limit of 10 orders is also enforced. All inserted orders in excess of this limit are rejected.
  • Finally, an active volume limit of 200 lots is enforced. The active volume is the sum of the volume of all the orders you have on the exchange. All inserted orders which would cause this limit to be exceeded are rejected.
  • The OPTI-100 Index Future closing price is the last traded price.
  • The OPTI ETF closing price is the larger of

min(OPTI-ETF Last Traded Price, OPTI-100 Index Future Closing Price * 1.002)

and

 OPTI-100 Index Future Closing Price * 0.998.

Automatic Hedging

Your market making business has an elite unit dedicated to risk management. All trades in the ETF are automatically and instantaneously hedged in the future at the midpoint of the future price at the time the trade in the ETF is executed. There are no fees for hedging.

How to win?

To win Ready Trader One, you need to profitably market make the Opti-ETF. That means providing liquidity at the best prices for volumes large enough to facilitate the trading activity of investors. You will be competing with other market makers for the same trades, and investors will naturally trade with whoever provides the best prices. Your market making business will only be sustainable if you can identify profitable opportunities to trade at fair prices, place your orders as quickly as possible, and keep your risk exposures below defined bounds. You will be competing to be the best market maker of the OPTI-ETF.

Getting started

  1. Download the source code from the competition website. Instructions will be emailed to the team captain when the competition period begins in March. The source code includes a very basic Autotrader, an exchange simulator, and some test data.
  2. Learn about the Market Micro-Structure (see Order Book and Liquidity) and Market Making. This will provide you with the fundamental financial knowledge to tackle this challenge.
  3. Learn about the pieces of software that have been provided in the source code (see Writing An Autotrader).
  4. Follow instructions on the ReadMe file to run the basic Autotrader on the simulated exchange, view the log files and the match events file.
  5. Submit your Autotrader code by the deadlines for each of the online tournaments. Submission instructions are on the ReadMe file provided in the source code.

Glossary

Aggressor: the market participant that inserted an order in-cross with an existing order already on the exchange, causing a trade to occur.
Autotrader: a piece of software that automatically trades in a market (see Writing an Autotrader)
Competition Period: 8th of March to the 7th of April 2021
ETF: exchange traded fund – enables investors to buy and sell units in an investment fund. They are a popular tool for investors to access a range of markets and asset classes. In Ready Trader One, the ETF asset manager holds futures to track the index so the “Fair value” of the ETF exactly tracks the future price. However, the ETF price can deviate from the future fair price due to supply and demand in the ETF. The ETF can be created and redeemed at the end of each day for a fee which restricts how far the ETF price can deviate from the future before presenting an arbitrage opportunity.
Index Futures: enables investors to gain exposure to the Index. 
Index: 
is a measurement of the value of a particular segment of the market. It is used by investors for monitoring the returns of a particular market, and benchmarking performance of portfolios. For example, the ASX200 is an index comprised of the 200 largest Australian stocks.
Liquidity: refers to how quickly and easily an asset can be bought or sold in large quantities for a fair price. (see Liquidity)
Market Making: a market participant that is willing to both buy and sell simultaneously, intending to profit on the difference between the buy and sell prices (see Market Making)
Volumes: see Order Book