76 CHAPTER ◆ 6 STAGE 0: The Money Document
● Hardware and network architecture.
● Trading system speed and its impact on trading system performance.
● Availability of an appropriate test environment.A side benefit of this type of analysis is that forcing a survey of new technologies may
foster unknown improvements or uncover technological trends that may make existing
trading systems obsolete.6.3.4. Preliminary Time Line
Seed capital providers will of course want to know how long it will take to get the pro-
posed trading/investment system up and running. All projects, to be successful, need
time lines and milestones. A lack of documented project management processes at many
trading firms often leads to many good strategies withering away, due to a lack of firm
deliverables and firm delivery dates. These projects are often killed because it was tak-
ing longer than expected and because the people responsible for its development failed to
provide any details of project progression. Many times such systems gain new life at new
firms, where the project is restarted and quickly completed. (The second-build of a sys-
tem usually goes smoother and with a higher probability of profitability since the initial
problems were solved utilizing the original firm ’ s capital.)
A preliminary time line with defined gate reviews at stated intervals ensures the prod-
uct team will either complete the project on time or that it will notify management of
changes in the time line due to unforeseen problems. It is not necessarily fatal to be behind
schedule, as long the team is making measurable progress according to the original plan.
Sometimes development of a trading system gets behind schedule when backtest-
ing shows poor performance results. This is certainly acceptable. Proving that a system
does not work and understanding why it does not work can be valuable knowledge. If, for
example, the investment cycle has changed, then the firm will know to shelve the strategy
and wait for a new cycle. Checking the performance of the system will prevent additional
time and resources from being spent on unprofitable projects. Only by having a time line
with clean deliverables can you tell the difference between a project gone awry and a
project that is just more complex than initially estimated.6.3.5. Risks, Constraints, and Assumptions
Acknowledging risks up front will enhance the credibility of the product team in the eyes
of seed capital providers. In this section, the product team should describe the weaknesses
of a proposed trading system and threats to its completion and successful operation. Such
discussion should address the potential for new competition, new technologies, new regu-
lations, new trading environments, or new products that may adversely affect the success
of the system.The U.S. government forced the options industry to list option contracts on multiple exchanges, which led
to the creation of a new exchange, the International Securities Exchange (ISE). The option market mak-
ing industry quickly moved from a single floor-based exchange to the ISE ’ s electronic market. The tra-
ditional source of revenue for option traders, the bid/ask spread, collapsed by 50% in short order. Many
small option trading firms closed their doors soon after.