(EXECUTION MATTERS is a Traders Magazine content series focused on the topics most important to traders and technologists in US equities and options markets. EXECUTION MATTERS is produced in collaboration with Lime Trading Corp.)
For traders, back testing is considered a necessary evil — the output is critical to understand, explain and improve performance, but the process itself can be onerous and tedious, potentially leading some to delay or abbreviate this crucial step.
Back testing, which helps traders evaluate a strategy before real money is on the line, is considered so critical that it is likened to checking one’s parachute before jumping — not doing it thoroughly is not an option.
Lime Trading, which provides market access to US equity and options markets, has developed a way for traders to access comprehensive back testing tools without the usual coding, complexity, and resource requirements traditionally associated with the process. In partnership with ZipLime, the firm today introduced a flexible, scalable tool that aims to equip even bootstrap traders with the back testing capabilities that historically have been the purview of hedge funds with dedicated teams of programmers and Ph.Ds.
“It enhances the back testing experience by combining back testing with AI, allowing users with limited programming skills to create algorithms and test them on historical data before launching them into production,” Lime President Johan Sandblom told Traders Magazine. “This can be done without endlessly configuring the software environment and data, making for a more innovative and user-friendly offering.”
DIY back testing requires clean data, coding skills, and ample patience. Even after setting it up properly, there is a risk of introducing biases that make test results look better than they’ll perform in real life; and then translating a test version into production code without introducing bugs presents another hurdle.
The new ZipLime tool can test daily data over a period specified by the user, according to Sandblom. The system is built to handle various complexities and volumes of data, making it adaptable to different trading scenarios, as well as a broad base of users ranging from individual traders who want enhanced capabilities, to large trading firms seeking a more streamlined solution.
Importantly, the service updates itself automatically, ensuring that users always have the most current data and features, and minimizing the maintenance burden on users.
Lime Trading has an internally built back testing environment and its partnership with ZipLime expands its capabilities in this area. Lime clients will now have access to clean, trustworthy data, the most crucial component of back testing, as well as a ‘plain English’ interface; one-click testing to trading; results presented via data visualization; and built-in AI to assist with complex processes.
Ultimately, Lime’s back testing service is designed to enable traders to focus on their raison d’etre — trading strategy, market analysis, and trade execution — rather than the technical aspects of back testing. Firms can more readily test potential trading ideas, rather than delay them due to the complexities of back testing.
“Our goal is to provide a back testing product for our clients that can help trading firms reduce time spent on coding, debugging, and addressing overfitting,” Sandblom said. “This could offer meaningful efficiencies for our users.”
