Case study

Prop trader mimics real market environment with smart average price calculation

Company profile:
An established prop trading firm that operates in the regulated market and is focused on growth is actively hosting challenges to promote its services and attract new traders.

Issues and pains affecting the business

Main issue:

The B-book environment fails to duplicate the A-book environment as execution prices of the trading orders do not match the actual market, reducing the accuracy of the overall competition’s performance.

With trader challenges, prop traders rely on B-book execution, which has to fully mimic the real market environment while keeping the competition risk-free, as all trading happens in a sandbox, and no real funds are at risk. Completely duplicating an A-book is difficult, and there are discrepancies with prices that traders operate with, resulting in reduced accuracy of the overall performance.

Supporting issues:

Prop traders that participate in competitions don’t fully experience real-market trading, making them less prepared for it when the organised challenges end.

Details of the project:
milestones and number of people involved

The project’s duration, from introduction to the implementation of VWAP functionality on the client site, was 10 days.

The management of the prop trading team was engaged in the project, along with the TFB team, which consisted of a sales representative, a technical specialist, and a local customer support manager.

The project kicked off with a general meeting where issues and concerns were identified, followed by another session with a solution pitch and discussion. The next step was to run a demo test of the VWAP functionality for the client to demonstrate the difference that it made to the overall perception of execution prices. After a round of tests, the new feature was integrated into the competition environment, and prop traders could utilise it as the challenge progressed.

The TFB team kept in touch for the following week to ensure everything ran smoothly and answer any questions that the client or challenge participants had raised.

Solution and specific features offered

After consulting with the client and careful consideration, the TFB team proposed the implementation of the Volume Weighted Average Price (VWAP) functionality within the Trade Processor liquidity bridge.

VWAP is a sophisticated calculation that goes beyond a simple average. It determines the average price of a security based on:

Trading volume

The price at which the trade occurred

As a result, trades with higher volumes have a greater influence on the VWAP and demonstrate the actual average price paid by traders over a given period of time.

End result

As a result of the project, the prop trading company was able to reach its primary goal of having more objective trader competition results.

Additionally, the following was achieved:

  • Prop traders are able to experience real market conditions while operating in a simulation environment.
  • The realistic nature of the competition creates a powerful learning opportunity for traders to see how market activities and prices are interconnected and how VWAP is impacted by their trades, which, in turn, teaches them to look for ways to minimise slippage.
  • Prop traders that exit competitions and continue trading in the actual market are more knowledgeable and experienced; hence, the risk of them creating huge losses for the prop trading company is reduced.
  • The number of traders recruited by the client post-competition increased after the VWAP implementation, contributing to their growing volumes and more successful trades.
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