About the author

Joost is a seasoned Infrastructure Engineer and team lead with over 20 years of experience. He joined Optiver in 2017, and is responsible for automating the deployment and monitoring tools for Optiver’s cutting-edge trading systems.

In my role as an infrastructure engineer at Optiver, I field a lot of queries about our trading systems and the role that engineers play at firms like ours. I’d like to take this opportunity to shed some light on what Optiver does and demystify the role of engineering within a trading environment. Along the way, I’ll highlight the indispensable contribution engineers make to the core domains of pricing, risk management and execution.

Whether you’re an aspiring engineer exploring career paths in trading, a professional in the industry looking to better understand its technological backbone, or simply a curious mind interested in the intersection of technology, finance and trading, I hope that this post can fill in some of the blanks.

The three pillars

The success of market makers and electronic trading businesses revolves around three key pillars: pricing, risk and execution. Technology isn’t just a support function; it’s the engine that drives and enhances all these areas, making it a critical component to Optiver’s success.

The primary trading strategy used by market makers is to continuously provide quotes—both bids to buy and offers to sell—for a given financial instrument, so let’s start there.

Execution: Engineering for speed and precision

In the world of market making, providing quotes—both bids to buy and offers to sell—at precisely the right time is crucial.

Our engineers design and maintain systems that can handle vast amounts of data at lightning speeds. We determine our bids and offers by calculating a theoretical price for the instrument and the margin needed to compensate for the risk involved.

Once we have established the prices and risks, the trade needs to be executed immediately. If we can’t calculate our risk and publish our prices to the market quickly enough, we’ll miss out—because prices change rapidly, and so does the risk. In order to provide traders with timely market access, we need to handle whatever the markets throw at us.

Therefore, the execution pillar is where most software engineers focus their efforts when they start at Optiver.
We run our own computers, hardware, and software in our colocations, with orders executed via our proprietary trading systems. These systems are part of a global network comprising thousands of high-performance, low-latency applications that solve problems in nanoseconds.

“At the end of the day, fast execution means running very little code on a very fast computer.”

In execution, speed is the name of the game. There are only two ways to speed up your algorithm: make it do less and make the computer faster. While Moore’s law helps in making the computer faster, a lot of our engineering is focused on making the algorithm do less. We calculate as much as we can ahead of time so that when a market event triggers a response, the calculations needed are simple and few in number. By building our software to keep code and data in the fastest caches on our CPUs, we can ensure quick and consistent responses. These responses can then be further accelerated by delaying all but the most crucial operations and moving things like bookkeeping and logging away from the hot loop that takes care of responses. At the end of the day, fast execution means running very little code on a very fast computer.

Pricing: Advanced modelling for accurate valuations

So how do we calculate the theoretical price in the first place? Since our bread and butter at Optiver is making markets in options, let’s take the example of options pricing. To make a market, it’s necessary to have an opinion on the value of the option itself. Because the scale is too vast for an individual to manage, mathematical models are needed to extrapolate certain data from the option to determine an opinion of its value.

“Our systems are designed to scale with the size of our trading operation and not the busyness of the market, delivering highly accurate and reliable tech tools that enable critical time-sensitive valuations.”

Our researchers rely on Optiver’s high-performance computing and storage systems to conduct the quantitative and options research needed to formulate these models. Once these models are developed, our engineers take the lead in deploying them to a dedicated fleet of systems optimised for this specific task.

Our engineers are central to ensuring these models run efficiently and effectively. They not only implement these models but also continuously refine and optimise them to handle large volumes of data to provide accurate valuations in real-time. By employing constant rate processes, we ensure a steady stream of results that take into account the most recent information and decisions.

In this way, our systems are designed to scale with the size of our trading operation and not the busyness of the market, delivering highly accurate and reliable tech tools that enable critical time-sensitive valuations.

Risk: Managing risk with cutting-edge models

Once the theoretical value of an option is determined, the next step is evaluating the risks we’re incurring and the margin needed to offset those risks. As the market continually changes, so does our risk exposure. How does this impact pricing? And does it change our risk appetite?

At the heart of our risk management we use cutting-edge risk models developed and maintained by our engineering team. These models are math-intensive and challenging to scale, but they are crucial for understanding the immediate impact of all the risk we are currently taking on. The overall market trades metric gives us a total position in terms of an options (risk) portfolio. Next to the risks of the position we hold is the risk profile we’re compiling, which quantifies the market forces involved to understand any potential price changes. Combined, these are the risks we’re running.

There are three potential scenarios to consider in options trading: the strike price (aka exercise price) can be at the same level as the option price, it can be higher, or it can be lower. With high trading volumes, the parameters of each option trade can change significantly. It’s crucial to know what risks we are running at any given moment and how they correlate to one another. Our engineers help translate these risks into limits for traders, providing clear boundaries and ensuring that we don’t take on too much risk or miss opportunities for profit. This continuous monitoring and adjustment process is crucial for maintaining a balanced risk profile and achieving sustainable trading success.

Your future in engineering at Optiver

I hope this overview of the three key pillars of market making and electronic trading helps to shed some light on the tech behind them.

If you are a current or aspiring engineer exploring career paths in trading technology, we’d love to hear from you. Optiver offers motivated tech candidates looking for a challenging collaborative environment the opportunity for significant personal development within an exciting industry.