November 2015
Advantage Futures celebrates over twelve years of growth. Throughout the great recession with its punitive zero rate environment, Advantage established significant international brand expansion, now with clients in fifty-seven countries. Processing over 3.4 billion contracts over that period ranks Advantage among the highest volume clearing firms in the industry.
Advantage diversified from a small boutique focused on interest rate “local” floor professionals in Chicago to a firm with global reach and clients ranging from large institutions to proprietary trading groups, CTAs, CPOs, IBs as well as retail-oriented individual traders.
Even during its inaugural year in 2003, Advantage boasted significant market volume in interest rate products among the professional trading community. A global suite of products was always important to the firm and its clients. Clients had access to LIFFE and Eurex with European fixed income trading in addition to the interest rate products offered on the CME and CBOT. In the ensuing years, Advantage added grain trading professionals followed by equity index traders. By 2006, Advantage offered the NYMEX products and by 2009 onboarded professional traders focused on COMEX products and NYBOT products as well.
Advantage continues to broaden its client base as well as its product and exchange offerings. In 2014, Advantage ranked 31st in Futures Magazine “Top 40 Broker Ranking” and fourth in Investopedia’s “Top 10 Brokerage Firms for Day Trading in 2015.”
The Futures Commission Merchant (FCM) community continues to contract, burdened by low interest rates, escalating regulatory/compliance costs and limited market volatility. “Attrition in the FCM space is severe—eight years ago there were over one hundred and eighty firms, where today there are less than seventy and even fewer full-clearing members,” explained Mark Frantz, Senior Vice President, Business Development. “Meanwhile, Advantage expanded its client accounts. We are well-positioned to increase our footprint serving clients in the years ahead.”
GLOBAL
Advantage Futures seeks to establish and foster excellent relationships with clients and exchanges around the globe. Client trading access to DME, NFX, ASX, Euronext Paris, JPX and TOCOM was recently added extending Advantage’s global product reach. While benefitting existing clients, this product expansion also sparked client interest from the Asian Pacific and Middle Eastern regions including Australia, Singapore, China, Dubai and India. Advantage anticipates increasing demand for our futures clearing services as the trading community throughout these regions, including China, continues to expand.
“The Chinese have interest in trading US markets,” commented Tim Foley, Vice President, Business Development. “Funding trading accounts here in the US can present a challenge for Chinese citizens. It may take a while, but in time I think China will generate enormous trading volume into global markets. In Singapore, Hong Kong and Seoul it is easier for traders to fund accounts and trade overseas exchanges.”
Traders can turn to Advantage to assist with connectivity issues, including colocating servers. Many traders in these countries seek an FCM providing accessible technology support and 24 hour global execution services. All these are core competencies at Advantage. Sydney hosts a large and diverse trading community including proprietary trading firms, hedge funds and a large and talented pool of individual professional traders. Connectivity and speed are two of their primary concerns. Advantage offers a variety of third party trading platforms as well as server colocation strategies to serve the Pacific Rim including Australia.
TECHNOLOGY
“We are witnessing increased demand for server colocation and network support. These technology costs are major expenses for many proprietary firms and high tech trading clients. Some of our savviest clients are realizing they can outsource this technology hosting and support to Advantage for a significant reduction in their operating expenses. We’ve fielded several inquiries due to our tremendous expertise and lengthy experience in this technology arena,” noted Terry Duffy, Senior Vice President, Business Development. As an FCM with a technology-centric account base, Advantage enjoys certain economies of scale and is able to pass this benefit along to clients. Combining Advantage’s suite of services for execution, clearing and server hosting enables the firm to offer competitive pricing. “Efficient trade processing, low-latency, robust technology infrastructure and 24-hour access to Operations, IT and Global Execution combined with aggressive pricing make Advantage one of the highest volume futures clearing firms in the industry,” commented Duffy.
In this age of heightened concern about cyber security, Advantage commits significant resources to network security and data protection. Tom Guinan, Chief Technology Officer stated, “Advantage has two full-time network engineers with more than thirty years of aggregate experience. Both have spent their careers focusing on network security. Advantage implements strict security policies to help protect our network and our clients. Advantage employs multiple state-of-the-art security devices throughout its network to protect the Advantage network and all client data.” Trading platforms have seen significant changes. In the past, trading platforms revolved around older programming technologies such as Flash, Java and .NET. More advanced programming language technologies such as HTML5 are becoming the preferred language for platform providers. These newer technologies benefit both the platform providers as well as traders. Independent software vendors (ISVs) now integrate advanced functionality and customizability to meet a wide range of trader needs. “On the trading side, users now have access to fully integrated trading tools, customizable charting views, as well as trading algos,” offered Neil Machchhar, Senior Vice President, Information Technology. “Having all of these tools and features in a single interface and being able to link them in real-time can tremendously improve the trading experience as well as eliminate the need for third party applications providing the same features.” Further advancements such as geolocation tracking may help traders achieve faster trade executions. Some ISV’s hosted solutions offer servers in strategic geographical locations allowing traders to connect to the closest server thereby reducing latency and improving execution times.
EXECUTION SERVICES
Time has ushered in many changes to the trading industry. Recently, the CME closed its futures pits while electing to keep the options pits open. After one hundred and sixty-seven years, open outcry pits continue the transition to the screen as the majority of trading now occurs electronically. Advantage appreciates the preference some clients, particularly many of our large institutions, have for access to the remaining pits. We maintain our experienced execution team on the CME Group trading floor to serve these traders. “Advantage is committed to continue providing execution services. There will always be a place for value-added brokers and risk transfer whether the execution is in a trading pit or on an electronic platform. While some firms were quick to exit the pits, we see real value in continuing to serve our clientele from the exchange floor,” commented Mike “Mac” McLaughlin, President, Institutional Sales. The options markets on the CME floor are some of the most liquid markets in the world. The growth of electronic futures trading and explosion in open interest enhances options markets, allowing ease of access to underlying liquidity for open outcry options market makers seeking a hedge. The CME reported a record 2.56 million options contracts traded per day across all products in September 2015. Eurodollar options accounted for 966,462 contracts per day with 72% of those contracts executed in the pit. Total open interest in Eurodollar options is approaching 30 million contracts, amazing especially when one considers the Fed Funds target rate has been at its lower bound, 0% to .25%, since December 2008 and it’s been nearly a decade since the Federal Reserve last tightened credit.
MARKET ENVIRONMENT
As the firm looks toward the future, one of the most anticipated movements will come from the Fed. When the Fed initiates its liftoff and starts to raise rates there will be increased opportunities in the markets as volatility returns and volumes soar. The strong dollar helped exacerbate a decrease in commodity prices for grains, metals and energy in conjunction with zero percent interest rates leaving the global economy in nearly a deflationary environment. “Markets can be cyclical; when we see an increase in interest rates, we may well see renewed interest in commodities. Volatility will lead the way to increased volume with more participation from domestic and foreign investors. The changing political landscape, ongoing global and domestic economic challenges, and uncertainty surrounding climate change, all point to increases in uncertainty, which creates opportunities for market participants,” explained Duffy.
William Steele, Chief Risk Officer, believes managed futures may be set for dramatic expansion as an asset class. “Moving from commodities and asset classes towards the model of managed futures is something we could see in the future.” Steele thinks this might not be far off, “Especially if we continue to sit in a low interest rate environment for an extended length of time. Traders are looking for an alternate investment.”
RISK
The Advantage Credit/Risk Management Department witnessed a shift in client profiles over the years from floor-based locals to electronic trading to server-based algorithmic trading. The Credit/Risk staff of eight monitors multiple systems throughout the trading day. Their critical mission protects both Advantage and our clients. “Accepting the right clients is critical to successfully building our business,” stated Michael O’Malley, Executive Vice President, Business Development. “
OPERATIONS
As a technology oriented FCM, Advantage is always seeking effective tools to lead the market. Current back office systems used by the FCM community are dated and will likely need to be modernized in the coming years. The largest back office systems providers have entirely new environments in development. “Because of the increased complexity of products, there is a need to develop software to enhance back office functionality,” commented Phil Singer, Operations Manager, “As the number of products increase, position management has to be automated.” Singer believes the employment opportunities will be strong in the FCM business to meet the needs of new products and technology demands, “Technology utilized in operations has not kept pace with execution, trading, risk technology or product developments and will need to catch up in the near future.”
RESOURCES
Advantage continues to grow and has increased its staff over the last two years. The senior management team averages nearly 30 years of industry experience. Advantage expects to end 2015 with a dozen new employees this year. Another testament to Advantage’s commitment to the future is the firm’s long-term lease at 231 South LaSalle Street in Chicago’s financial district. The state-of-the-art trading facility includes 41,500 square feet of office space. “The beautiful new office provides the technology infrastructure and environment to sustain our growing business,” said Joe Guinan, Chairman and CEO. “This office serves our clients well while enhancing the workspace quality for all Advantage Futures employees. It’s made to trade!”
Advantage looks forward to meeting the challenges of the future “Advantage deeply values each client and our team works hard to earn their trust,” commented Guinan. “We appreciate the wonderful relationships we have formed while we continually renew our dedication to serve our clientele.”
