B U S I N E S S R E V I E W
`
`FuturesOnline
`
`Looking to create a Web-based futures trading platform more flexible and powerful than anything else
`available, LFG, one of America’s leading futures clearing firms, built a solution that uses the Internet as a
`medium for the transmission of orders and the receipt of fill information from futures exchanges. Utilizing the
`Microsoft® Windows® DNA platform enabled LFG to bring its service to market quickly, and has helped ensure
`that the site is reliable, scalable, and cost-effectively manageable as well.
`
`Solution Overview
`Company Profile
`FuturesOnline provides a Web-based platform
`for trading futures contracts. Since its inception
`in 1998, the company has grown to the point
`that it now clears over $100 million in futures
`contracts every day.
`Situation
`Legacy client/server software for trading futures
`contracts was difficult to upgrade, offered
`minimal risk management, and provided limited
`trading capabilities and account visibility.
`Business Solution
`The company replaced the client/server solution.
`Using Microsoft Visual InterDev as an integrated
`development system, they created a three-tier
`system based on the Microsoft Windows DNA
`platform, using Windows NT Server, Internet
`Information Server, and SQL Server 7.0.
`Benefits
`By switching to a Web-based trading platform,
`FuturesOnline is able to provide access to
`anyone with an account and an Internet
`connection. Using Visual InterDev, developers
`can rapidly deploy new features that improve the
`customer experience. Concentrating all business
`logic in the middle tier provides greatly improved
`risk management over the client/server based
`solution, and storing all data in a centralized
`SQL Server database enables complete visibility
`into trading positions, risk levels, and account
`history for all interested parties.
`
`
`
`L
`
`FG, formerly known as Linnco Futures
`Group, is one of the world’s largest futures
`commission merchants, maintaining
`memberships on all principal U.S. and some
`international exchanges. In December 1997, the
`company formed a new division, FuturesOnline,
`with the mission of building the best online
`trading platform for futures and cash foreign
`exchange.
`Since time-to-market was a priority, the
`company decided to develop its solution on the
`Microsoft Windows DNA platform. Using the
`Microsoft Visual InterDev® Web development
`system, they implemented a three-tiered system
`running on Microsoft Windows NT® Server,
`Microsoft Internet Information Server and
`Microsoft SQL Server™ within nine months.
`Today, FuturesOnline is used regularly by
`both individual traders and professional brokers
`who trade on behalf of their clients. Requiring
`only a Web browser and an Internet connection,
`FuturesOnline provides users with all the tools
`they need to trade efficiently, including the ability
`to place orders directly to the trading floor, the
`means to monitor working orders and positions
`in real time, and a host of complimentary
`features.
`To date, FuturesOnline has grown to 50
`employees and 2,500 unique end users. Trading
`volume has increased to the point that the
`company is now clearing over $100 million in
`futures contracts every day. Because of the
`architecture and platform decisions LFG made in
`the beginning, the company is well-positioned to
`accommodate future growth without getting
`distracted from its primary mission—providing
`the best online futures trading platform by
`offering an unequalled customer experience.
`
`From the Pit to the TOPS
`Unlike the NASDAQ stock market, where
`securities are traded electronically, orders to buy
`and sell futures contracts are actually executed
`by live brokers. Each futures product that an
`exchange offers has a specific area called a “pit”
`where the buying or selling of futures contracts
`for a particular product physically occurs. These
`“filling brokers” act as the representative of the
`
`person who initiated the order, trading verbally
`to buy and sell futures contracts. To ensure
`that the brokers are best serving the buyers
`and sellers that they represent, they are not
`allowed to bid (buy) or offer (sell) for a contract
`until they can do so at the best possible price.
`The process for transmitting an order from
`a buyer/seller to the trading pit has traditionally
`involved as many as eight separate
`interactions, and required anywhere from 30
`seconds to 30 minutes. To make this process
`more efficient, the Chicago Mercantile
`Exchange and the Chicago Board of Trade
`jointly introduced the Trade Order Process
`System (TOPS) in 1989. Using this system,
`brokers could place orders directly to the
`trading floor without having to call an order
`clerk.
`However, TOPS terminals were extremely
`expensive for clearing firms to deploy since
`they required direct connections to the
`exchange routing network. Additionally,
`customers were still required to use an
`intermediary by calling a broker to send an
`order to the exchange floor.
`In an effort to provide additional access, the
`exchanges created an Application
`Programming Interface (API) for TOPS so that
`clearing members could create their own front-
`end interfaces into the system. Using these
`custom solutions, brokers and individual
`customers without TOPS terminals could now
`place futures orders and monitor order flow. At
`the same time that firms were creating their
`own front-end systems, major exchanges were
`developing systems which interfaced with
`TOPS and routed orders directly to the filling
`broker, eliminating two additional
`middlemen—the deck holder and the trading
`floor clerk—from the process.
`
`Building on LEO
`LFG, like many other members of the futures
`exchanges, created its own client/server front-
`end system which connected to TOPS. Called
`Linnco Electronic Order, or LEO, the system
`was deployed in 1993 and is now one of the
`most popular order entry systems, having
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`been licensed and re-branded for use by several
`other firms. While LEO was more economical
`than deploying TOPS terminals on every
`desktop, the system was still far from ideal.
`Although LEO provided access to the exchange,
`it required deploying a fat client on every
`brokers’ desktop, which made distributing a new
`version of LEO a significant project. As a result,
`new features were not a high priority since the
`cost of deploying this functionality on a regular
`basis was prohibitive.
`Since clearing firms are responsible for
`making good on trades they conduct on behalf
`of clients, they need to manage the exposure of
`each account holder. Futures contracts are
`leveraged investments, meaning that a small
`change in price can cause proportionately larger
`gains or losses to the trader. Therefore, clearing
`firms need to ensure that clients have enough
`extra funds in their account to cover any losses
`before granting them direct access to the trading
`floor.
`Traditionally, LFG accomplished this by
`requiring large minimum balances in order to
`open and maintain a futures trading account with
`this type of access. The only other pre-execution
`form of risk management was that LEO limited
`the size of each order ticket according to the
`equity in an account. However, there was no
`mechanism to keep an individual from placing
`any number of orders in a row, other than having
`someone manually monitor customer activity.
`While this decreased the firm’s exposure, it
`
`limited the company’s customer base to those
`few individuals that could maintain the minimum
`balance, and still left the firm exposed to
`unnecessary risk. If LFG could find a better way
`to manage risk, it could lower the initial balance
`requirements and grow its customer base.
`Another major limitation of LEO was that
`trading activity and history was not easily
`accessible to all stakeholders. For example, if a
`trade was placed from one desktop running a
`LEO client, it could not be accessed by another
`desktop. This meant that brokers using LEO
`could not monitor client activity or alter an order
`placed directly by a client.
`
`Comprehensive Environment in a
`Box
`Following the example set by E-Trade in the
`equities market, LFG formed FuturesOnline to
`develop a similar solution for the futures trading
`market. Using a three-tiered architecture would
`enable the firm to provide a rich, Web-based
`interface that was easily maintained and would
`provide clients with immediate access to new
`features as fast as they could be developed.
`The middle tier would provide extensive risk
`management, and the data services tier would
`provide a centralized data store which could be
`drawn upon to keep all users informed.
`LFG decided to build their new system using
`Microsoft Windows NT Server, Internet
`Information Server, and SQL Server. “Once we
`decided to develop an online trading application,
`
`
`
`“Once we decided to develop an
`online trading application, we
`knew that being early to market
`was critical. To accomplish this,
`we needed a rapid development
`tool, a full-featured database, and
`an infrastructure that would
`support the growth we
`anticipated. Microsoft servers
`provided us with one-stop
`shopping—a comprehensive
`environment in a box.”
`Glenn Swanson
`Chief Operating Officer
`FuturesOnline
`
`
`FuturesOnline provides the ability to
`send orders for futures contracts
`directly to the trading floor of the
`futures exchange. All that a user
`needs is a trading account and an
`Internet connection.
`
`
`
`
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`we knew that being early to market was critical,”
`recalls Glenn Swanson, Chief Operating Officer
`for FuturesOnline. “To accomplish this, we
`needed a rapid development tool, a full-featured
`database, and an infrastructure that would
`support the growth we anticipated. Windows
`DNA provided us with one-stop shopping—a
`comprehensive environment in a box.”
`FuturesOnline used Visual InterDev to
`develop the Web-services tier of the platform. “It
`provided us with a centralized development
`environment,” indicates Swanson. “Developers
`are able connect to the server, download the
`pages to work on, make changes, view those
`changes in the Web browser, and save the files
`back to the server all from within InterDev. This
`reduces development times, allowing us to bring
`new online trading concepts and service
`offerings to market quickly. Once we develop a
`unique concept, we can prototype, test, and
`deploy in a matter of days. We can also maintain
`the application with a smaller development staff.”
`In creating the site, LFG relied heavily on
`Active Server Pages (ASP). “We needed our site
`to be fast and efficient, so we used ASP. Since it
`supports VB Script, which is specifically
`designed for creating interactive Web
`applications, we can make creative, highly
`customized enhancements in response to user
`demands.
`“We also make strong use of dynamic SQL.
`Because one ASP page can open several
`recordsets, we can present data to users in the
`format that provides the greatest benefit. For
`example, with one mouse click a user can
`determine all open positions and calculate the
`trades that would be needed to “go flat”, meaning
`that they close all open positions in a very rapid
`manner.”
`
`Improved Risk Management and
`Better Access
`In order to solve the risk management issue,
`FuturesOnline designed the business logic tier to
`provide extensive risk management functionality.
`Before an order is transmitted to its final
`destination, it passes through a risk management
`module that ensures the trading account has
`sufficient excess margin (excess funds) to cover
`the downside risk associated with the trade. It
`also looks at the client’s other open positions,
`ensuring that the new trade won’t increase the
`client’s overall exposure past acceptable limits.
`
`In addition to minimizing the firm’s exposure across
`its traditional customer base, this improved risk
`management means that FuturesOnline can now
`serve a new tier of individual clients by permitting a
`lower minimum account balance, and without
`compromising the integrity of the firm.
`The system’s extensive risk management
`functionality is made possible by its centralized
`database, which is based on Microsoft SQL Server
`7.0. Since all user information, trading activity, and
`history is represented in a single database, the
`system can provide maximum access and keep all
`parties completely informed. For example, if an
`individual investor places an order in the morning
`from his home computer, later in the day that same
`user can call his broker and have him modify the
`order on his behalf. Similarly, a number of brokers
`could be granted permissions to work as a team
`and manage trades for a common group of clients.
`Brokers can instantly run a report that lists every
`customer account with the corresponding gain/loss
`for the day, enabling them to take immediate action
`if a client is incurring large losses.
`FuturesOnline managers can also enter orders
`and monitor customer activities by using the
`“Broker Management” component of the system.
`Since all data is centralized, they have the ability to
`assess the overall exposure to any commodity,
`instantly alter margins for any commodity or trading
`account, or disable any account from entering any
`new positions.
`“The competitive price and ease of management
`of SQL Server allow us to meet the demands of a
`continually expanding user population and
`increasing number of hits, without increasing our IT
`staff or sacrificing performance,” states Swanson.
`“Its dynamic configuration allows our database to
`meet the fluctuating demands we place on our
`applications. The level of performance it provides
`has allowed us to do some incredible things, such
`as de-duping our production database every five
`minutes in the middle of a trading day because we
`were getting duplicate data from an exchange.”
`
`Scalability and Reliability
`Like online equity exchanges, futures clearing firms
`have zero tolerance for downtime during a trading
`day.
`“Since a majority of our customers are day
`traders, they often execute over 100 trades per
`day,” explains Swanson. “When trading futures, the
`inability to trade for even a few minutes could have
`significant financial consequences. If we couldn’t
`
`“The competitive price and ease
`of management of SQL Server
`allow us to meet the demands of a
`continually expanding user
`population and increasing
`number of hits, without increasing
`our IT staff or sacrificing
`performance. The level of
`performance it provides has
`allowed us to do some incredible
`things, such as de-duping our
`production database every five
`minutes in the middle of a trading
`day because we were getting
`duplicate data from an
`exchange.”
`Glenn Swanson
`Chief Operating Officer
`FuturesOnline
`
`
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`“If we couldn’t keep our systems up 100% of the time, we would lose customers in a
`hurry. Fortunately, for us server downtime has not been a concern. The platform has
`been very stable and we have therefore been able to provide our users with a reliable,
`consistent Web site.”
`Glenn Swanson
`Chief Operating Officer
`FuturesOnline
`
`Database Information
`Version Used: Microsoft SQL Server 7.0
`Size of Total Database: 4 GB
`Size of Largest Database: 2.5 GB
`Total Concurrent Users: 700-800
`Total Users: 2385
`Transactions Processed per Second: 20
`
`For more information
`About Microsoft
`Call the Microsoft Sales Information Center at
`(800) 426-9400. In Canada, call the Microsoft
`Canada Information Centre at (800) 563-9048.
`Outside the 50 United States and Canada,
`please contact your local Microsoft office.
`For more information about Microsoft-based
`financial services solutions, visit the Microsoft
`financial services industry home page on the
`World Wide Web, at
`http://www.microsoft.com/industry/finserv.
`Microsoft Software Used
`Microsoft Internet Information Server
`Microsoft SQL Server
`Microsoft Visual InterDev
`Microsoft Windows NT Server
`
`keep our systems up 100% of the time, we would
`lose customers in a hurry. Fortunately, for us
`server downtime has not been a concern. The
`platform has been very stable and we have
`therefore been able to provide our users with a
`reliable, consistent Web site. Similarly, we
`currently have no scalability concerns. As the
`application grows in response to our user
`population, the existing architecture will allow us
`to scale up without an additional software
`investment.”
`
`System Management
`In addition to providing a unique user experience
`for both clients and company management, the
`application has proven to be easy for the
`company’s technical staff to manage.
`“Microsoft server products have simplified
`administration and management by centralizing
`all of the tools necessary to monitor our
`environment,” states Swanson. “The similarity of
`the products in the suite allows knowledge
`transfer more quickly than would be possible with
`a variety of tools from different vendors. We are
`able to manage an increasingly complex
`environment with minimal complexity in
`
`administrative and management tasks. This allows
`us to leverage our existing investment in IT staff,
`thus reducing cost of ownership. As our client base
`continues to grow, we can accommodate the influx
`of Web traffic and continually enhance our service
`offerings without increasing our IT staff.”
`
`Moving Ahead With Microsoft
`“We will continue to maintain and administer our
`application and environment with Microsoft
`technologies,” says Swanson. “The talent pool of
`Microsoft Certified Professionals provides
`assurance that we will be able to continue
`enhancing and supporting the application even in
`the event of staff turnover, which translates into
`continued high returns on our initial investment.
`Had we chosen other vendors or technologies, we
`would not have been able to rely on technical
`certifications as an assurance that our staff
`possesses a certain skill set.
`“With Windows DNA, we can offer our clients a
`reliable, secure Web site. It has enabled us to
`anticipate and respond to trends in the online
`trading industry with innovative service offerings
`and enhancements to our application without
`technology integration or deployment delays.”
`
`
`
`Extensive risk management functionality minimizes a firm’s financial exposure by enabling management to view
`net gain/loss for all accounts in a single screen.
`
` 2000 Microsoft Corporation. All rights reserved.
`This case study is for informational purposes only. MICROSOFT
`MAKES NO WARRANTIES, EXPRESSED OR IMPLIED, IN
`THIS SUMMARY. The information contained in this document
`represents the current view of Microsoft Corporation on the
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`
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`
`Redmond, WA 98052-6399  USA
`
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