Technical Information about how Collective2 determines hypothetical execution prices
All results displayed on Collective2 must be regarded as hypothetical. Elsewhere on this Web site we warn you about the risks of relying on hypothetical results. Hypothetical results can be vastly different than the real-life results you can achieve in your trading account, almost always for the worse.
Since all results on Collective2 must be regarded as hypothetical, we believe it is useful to explain how these hypothetical results are calculated on this site. The purpose of this page is to describe with some technical detail information about how Collective2 gathers and calculates hypothetical results.
How does Collective2 decide what "hypothetical execution price" to display?
The general way Collective2 works is as follows:
1) System vendors enter signals in real time. Trading-system developers publishing on Collective2 must transmit to us specific buy and sell information in real time. In other words, system developers do not send us a historical "track record" purporting to show how they would have traded in the past. Rather, they enter into our Web site (or use electronic transmissions through our software API) a specific, actionable recommendation, at the time that action must be taken - for example: BUY 50 shares of IBM at Market, or SELL SHORT 1 E-Mini S&P futures contract at limit 1505.50.
2) Once we receive this trade "signal," Collective2 does two things.
First, it attempts to simulate how a real-life trader following the exact instructions of the vendor, at the exact moment the vendor makes the recommendation available, would fare. We do use using real-time quote feeds from various exchanges. Our simulation software uses the bid/ask spreads provided by the data feed, where available. In other words, when a trader instructs to BUY at market, we assume the trade will be executed at the ASK visible at the moment the signal is received.
Second, Collective2 interfaces to various third-party AutoTrading Service Providers. If a customer gives us permission, and designates a third-party AutoTrading service, we will allow that Autotrading provider to access the customer's subscriptions on the customer's behalf, and to read the trade signals on our servers, and finally to relay those signals into a subscriber's brokerage account. Typically brokers require that a Letter of Direction be signed by an account holder before allowing AutoTrading Service Providers to place trades in customer accounts. Note that Collective2 is not itself an AutoTrade Service Provider; it is, rather, a software platform to which other providers may be given read-only access at the specific request of a Collective2 customer.
3) Many trading systems on Collective2 have no subscribers, or no AutoTraders. In these cases, the results shown on Collective2 will be based solely on quote-feed data, and are best-guess estimates of what a real trader might achieve. However, for those systems that have AutoTrading customers, Collective2 also receives electronic transmissions from various brokers. These electronic messages inform us about the actual execution prices achieved in multiple real-life trading accounts, across multiple brokerage firms. In these cases, Collective2 displays as the execution price the volume-weighted average execution from all brokerage accounts reporting the specific execution in question. This data, while perhaps nominally more useful than hypothetical fills based solely on quote feeds, must still be regarded as hypothetical data, and the same dangers of relying on such hypothetical data still apply.
Please keep in mind that:
These results are based on simulated or hypothetical performance results that have certain inherent limitations. Unlike the results shown in an actual performance record, these results do not represent actual trading. Also, because these trades have not actually been executed, these results may have
under-or over-compensated for the impact, if any, of certain market factors, such as lack of liquidity. Simulated or hypothetical trading programs in general are
also subject to the fact that they are designed with the benefit of hindsight. No representation is being made that any account will or is likely to achieve
profits or losses similar to these being shown.
In addition, hypothetical trading does not involve financial risk, and no hypothetical trading record can completely account for the impact of financial risk in actual trading. For example, the ability to withstand losses or to adhere to a particular trading program in spite of trading losses are material points which can also adversely affect actual trading results. There are numerous other factors related to the markets in general or to the implementation of any specific trading program, which cannot be fully accounted for in the preparation of hypothetical performance results and all of which can adversely affect actual trading results.