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Automated Trading Strategies and FORRS’ Automated Trading Maturity Model

Recently, a German consulting firm contacted us to inform us about its Maturity Model for algorithmic trading. Founded in 2015, FORRS is a consulting firm focused on the financial, energy and commodities space. With offices in Heidelberg and Munich, it provides a range of services like management consulting, business consulting, regulatory advice and solution design. In energy and commodities, it takes a process-oriented view towards its services. It looks at business activities, data and processes from the front to the back office, identifying areas where it can increase efficiency and sophistication, and provide strategy and advice. Specific areas of focus include things like market data, pricing & algorithms, system parameterization, risk management and so on.

Martin Hiller

As an example, Martin Hiller used the market data area. “No matter whether the client has an in house or third-party solution installed, we can help with identifying the types and sources of data needed, with making build or buy decisions around new software, and in the complete implementation program,” he told me. The same applies to areas like risk where they can help with risk models, pricing models, and so and have even developed their own valuation library for financial and energy derivatives. “Companies are moving towards digitalization,” said Markus Riess. “Companies want to take advantage of the flexibility in the German energy market and so they are rebuilding their systems in all areas of the business, bringing systems to the cloud, deploying fully automated Python programs in the cloud environments and so on to increase agility, speed and performance but still control costs. The COVID-19 lockdown has just helped bring greater focus on this trend.

This brought us to the reason for the call. One area of focus naturally is automated trading and what FORRS has found is that in order to help

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Markus Reiss

clients automate and digitalize, it is helpful to have a map of the steps along the way to increase their trading maturity level – they call this their Maturity Model . By plotting trading know how against data requirements, they have come up with a model that identifies everything from use of simple execution strategies through flexibility monetization strategies to Arbitrage trading as points in an ever increasing trading maturity curve model. At each step in the way, the trading company is increasing its sophistication and automation to take advantage of market conditions and market flexibilities. Indeed, we had a long and productive discussion around a number of trends observed by ComTech in power markets and found were each of these would fit on the maturity model such as traders providing market access to others via their infrastructure or looking at ways to optimize assets like batteries, for example. It is an intriguing model and I can instinctively see how it allows a consulting firm to identify where a client is at and then help them map a way to another level of maturity.

Meanwhile, FORRS is also helping clients with a lot of other types of projects in the space ranging from ETRM selections to helping build new data strategies, automate trading, improve valuation models and so on. We hope to be hearing from FORRS more often in the future.