Advanced Analytics in Futures and Options Trading Platforms

DXtrade has been developed to provide futures and options traders with all the instrument-specific analysis tools they require in one place, so that every trading session runs smoothly and efficiently.

Futures and options traders are spoilt for choice as far as indicators, visualizations and pre-set strategies are concerned. Whether novice or expert, the platform can be customized to the needs of every individual, offering a highly personalized experience.

Below, we’ll discuss some of the available analytical tools that DXtrade comes bundled with, as well as why they’re important to traders and how they’re used.

DOM ladder

When you see brokers referring to Level 2 pricing, they’re referring to price information beyond the current market price. This includes how many limit orders are sitting in the order book and at what levels. This extra information reveals the prices at which other traders are willing to buy and sell a given security.

The DOM (depth of market) ladder is a highly useful visualization tool that presents resting buy and sell orders in a manner that allows traders to easily see how much liquidity is available at different prices on both the bid and ask sides of the order book.

This is useful to traders for a number of reasons. Firstly, it allows them to spot imbalances between limit buy and sell orders. For example, an abundance of liquidity on the sell side of the order book, without a similar amount of liquidity on the buy side, can be an indication of the direction in which active traders will find it easier to move the price.

Some traders regard accumulations of orders on one or the other side of the order book as a “magnet” for market buyers and sellers (those actively buying and selling in the moment). This is because accumulations at certain price levels allow large market orders to be filled without significantly impacting the price.

Traders also use the information provided by the DOM ladder to predict levels at which an asset in a downtrend may find support and bounce, or at which an asset in an uptrend may find resistance and reverse to the downside. This is due to large accumulations of passive liquidity being able to effectively exhaust market buyers or sellers, particularly if these price levels coincide with other key levels identified by traders on the chart.

When used in combination with sound technical analysis techniques, the DOM ladder provides traders with extra information that can confirm or disconfirm the signals that their particular style of chart analysis may be providing them with, as well as identifying precise entry and exit points.

Heat maps

Heat maps are very useful to traders as they provide a great deal of information in a very visually succinct way, clueing traders into which stocks have been moving the most in a predefined period of time. Heat maps feature grids of colored boxes with different sizes, each box representing a given security and providing some information regarding its current price and recent performance.

Red boxes represent bearish price action, green boxes represent bullish price action, and the size of each box refers to the relative size of the price moves the underlying stocks experienced. Traders include heat map widgets in their trading layouts in order to have a constant view of what’s taking place on the markets they trade.

Stock and option screeners 

Stock and option screeners allow traders to scan through a large number of available stocks, narrowing down their selection to only those that possess certain features. In this way, they can create and manage their own portfolios of securities that fit into their strategies and trading methodologies. This is made possible by a database of available stocks that’s continuously updated with the current information pertaining to them. 

Traders are able to search these stocks according to a variety of fundamental criteria, for example market capitalization, price to earnings ratio (P/E), analyst recommendations, earnings per share (EPS), dividend yield, return on investment (ROI), and more.

Technical criteria can also be used to narrow down the selection of stocks to only those that are currently performing in line with certain technical indicators. These include moving averages and exponential moving averages (MA, EMA), relative strength index (RSI), Bollinger bands, and moving average convergence divergence (MACD), among many others.

Stock screeners are extremely useful tools for traders and investors as they speed up the research, analysis, and decision-making process, helping them to find the symbols whose performance currently coincides with their respective trading strategies. Since the performance of stocks is continuously changing, screeners can also be set up to provide alerts when certain parameters have been met, effectively informing them of potential buy and sell opportunities.

Option chains

An option chain is a handy visualization that provides information pertaining to all the options contracts available on a particular underlying security. At a glance, traders are able to view the information they require to be able to select which contract is appropriate to their trading strategy and risk tolerance.

Options chains usually include information about the strike price of each contract, the respective bid and ask prices, bid-ask spreads (the difference between the two), and the open interest on each option (number of outstanding contracts).

Advanced options traders will also require access to the Greeks, which are calculations of an option contract’s relationship to the underlying asset’s price change (delta), rate of change (gamma), decaying value as it approaches expiration (theta), the market’s estimated expectation of the how much the price could change over a given period (implied volatility, or vega), and interest rate changes (rho).

An option chain is usually the first port of call for traders wanting to analyze available contracts, scout potential trades, estimate their potential profitability, and to calculate the risks involved.

Options strategies

Options traders employ a variety of different strategies to mitigate risk, hedge, improve returns, as well as simulate other instruments or risk profiles. This usually involves trading a combination of different options contracts, sometimes both calls and puts, as well as different strike prices.

Due to the relative complexity involved in implementing some of these options trading strategies, trading platforms like DXtrade offer traders access to a variety of preset options strategies. These can be selected from a list depending on what the trader is trying to achieve. The platform will perform all the relevant actions by combining the individual positions required to create the options strategy in question.

This feature allows even less experienced options traders to experiment with different well-known options strategies and allows beginners to learn how these various strategies work by trying them out in demo mode with no capital at stake.

DXtrade provides presets for the following options strategies: vertical, straddle, strangle, ratio/back, combination, synthetic, covered, calendar, diagonal, butterfly, condor, and iron condor.

Advanced margin calculations

Though different from market and trading analytics, advanced margin calculation methodologies are particularly important to futures and options traders. Futures and options trading introduces additional requirements when it comes to calculating margin. The nature of these instruments calls for complex calculations which include factors such as volatility, contract expiration, strike prices, and risk-free interest rates. These factors must be calculated in real-time in order to provide both the trader and the business with a realistic view of the relative risk of both open positions and prospective trades.

The relatively simple way that margin is calculated in the case of other securities is insufficient for futures and options traders. These instruments require platforms to be able to perform margin calculations according to different methodologies, which can depend on the brokerage risk management practices and regulatory jurisdictions.

One such margin methodology is known as SPAN (Standard Portfolio Analysis of Risk). SPAN uses complicated algorithms to calculate a portfolio’s global one-day risk instead of the risk of any individual positions.

This method factors in risk-free interest rates, price action, volatility, strike prices, and changing times to expiration in order to determine the risk a portfolio is exposed to. Using a risk array that calculates the worst possible one-day move for a portfolio, it’s possible to determine the margin required to protect against this worst-case scenario and to apply excess margin to other positions.

SPAN margin is not offered by all brokers due to the complexity of the calculations that the platform in question is required to perform. What’s known as a combinatorial explosion occurs when multiple factors, such as the above, have to be computed for large numbers of orders and underlying trading accounts. DXtrade is equipped to perform a number of different margin calculation methodologies, including SPAN and Reg T.

Find out more

If you’d like to find out more about what DXtrade can do for you, as well as what else Devexperts has to offer your trading business, please contact us using the form below. To learn more about many of the important considerations that go into creating a platform like DXtrade, please click here or get in touch with our team.