Futures company uses software to capture trades

A Canadian futures company is betting on a mechanical trading software package for its clients.

Futures trading can encompass anything from coffee to currency to crude oil. As Rob Dzisiak, president of Refco Futures (Canada) Ltd.,

explains, “”the futures market is really there for price discovery, where buyers and sellers come together to determine the price for the future.””

The firm is bringing a series of software packages from TradeSystem Inc. to Canada after using them successfully in the U.S. through its parent company, New York-based Refco Group Ltd. LLC, which clears more than 35 million trades a month.

TradeSystem software is a “”mechanical”” package, meaning it collects data on opening, closing, and high and low values for futures commodities at the end of the trading day, then through a system of analysis and calculation makes trading recommendations.

“”I use price exclusively,”” said Keith Fitschen, president of Charlotte, N.C.-based TradeSystem. “”I don’t look at grain reports or housing numbers or anything like that. That’s all too late for the individual. I always look at just price; that’s available to everybody at the same time.””

Fitschen was in Toronto Thursday to deliver a seminar on futures trading. He has been involved in financial markets for almost 20 years, but got his start in software programming through the military. He flew gunships in Vietnam for the U.S. Air Force, then got a degree in stochastic estimation and began working on missile guidance systems.

“”I retired from the Air Force in ’88, but in the early 80s, having the skill set of understanding noisy data and understanding how to program a computer, I said I’m going to start designing trading systems.””

He said he had trouble finding buyers for his system in the beginning, so he used it to parlay US$8,800 of his own money into US$132,000, which then allowed him to sell it to other brokers.

According to Fitschen, using his system will generate returns of seven per cent a month. He publishes the results on his Web site. “”Most of the time . . . you’re not going to trade on a given commodity each day, but you will have some trades. The broker runs the software and he gets the same orders I get and anybody else who has the software gets.””

It has the advantage of being consistent, he said, as opposed to brokers or “”tape readers”” who try to determine futures trends by viewing currently available financial charts and statistics.

According to Jake Bernstein, a 30-year veteran of futures trading who runs his own firm, MBH Commodity Advisors Inc., in Chicago, about 60 to 70 per cent of traders use a mechanical system. But that doesn’t mean they follow them religiously.

“”Most traders don’t have discipline,”” he said. “”You can have the best system in the world, but if the trader wants to shoot themselves in the foot, they definitely will. They don’t want to take their loss when they’re supposed to. They don’t want to take a trade because it doesn’t look right to them.””

The TradeSystem software is being tested in Refco’s Winnipeg office, said Dzisiak, who was president of CFG Financial Group Inc. before it was purchased by Refco last year. There are five portfolio managers in Canada using the system. “”You don’t want to make a mistake with this,”” he said. “”It takes some time to become comfortable and familiar with the software, because (Fitschen) has a number of different programs.””

There are individuals who have bought Fitschen’s system, but he recommends going through a brokerage firm. “”Brokers are trading every penny of my money with these systems.””

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Jim Love, Chief Content Officer, IT World Canada

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