Testing Approaches of Dark Pool Trading System

Writing by AppLabs on Thursday, 12 of February, 2009 at 12:05 pm

The Dark Pool Trading System is mainly used by the institutional traders who trade in large volumes. The system helps institutional investors in getting more liquidity and less transaction cost. They also help fund managers’ strategies that are best implemented with the use of algorithmic trading. In spite of these benefits, few issues like inadequate price transparency, regulatory requirements and uniform information access to all kinds of investors are still debatable.

Considering the complexity of these trading systems in terms of technology, speed, functionalities and system performance, it is very important that the functional testing along with the gateways testing and performance testing need to be done.

Functional Testing:

As these applications are multi product, multi segment and multi user, an end to end functionality testing of the application is required, wherein each functionality needs to be identified, smoke and unit test cases of each needs to be developed. As these trading systems are linked and interdependent, authoring integrations test cases is needed. To ensure that the existing functionalities are not affected, regression testing on a continuous basis is needed.

Gateways (Interface) Testing:

Dark Pool Trading systems communicate with various internal and external systems and it is very important that the communication between these interfaces is very fast without any data loss. As these systems are mainly used by the institutional traders and bulk executions occur in a short span of time, interface testing plays a crucial role in validating the data flow.

Testing of the interfaces basically ensures the existence of communication between the client and server. The validation of backend messages is done by connecting to the various FIX gateways like DMA, IDCE, etc. The various message tags are also validated for the protocols like FIX (Financial Information Exchange), SIP (Securities Information Processing) and ITS (Inter market Trading System) in the respective gateways.

So all the gateway testing is to be done using any of the protocols (usually FIX is used for trading applications) to ensure smooth flow of communication between various gate ways associated with the dark pool trading systems.

Performance Testing:

The dark pool trading systems are used mainly by the large investors whose volumes are very high. They want their orders to be executed as and when the opportunity exists for their strategy implementation. As these applications are accessed simultaneously by multiple users, the load testing of the same must be done before implementing them in the production environment.

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Category: Dark Pool Trading, Software Testing