Click here to see the Video
The video describe the new profession, high frequency trading, that newly appeared with the emergence of the ICT. The speed traders, which are computer robots ruled by mathematicians and engineers (quants), replaced the traditional trader who was ruling Wall Street for more than 150 years.
High frequency trading is no of the two type of electronic trading. The first type is the manual trading where orders are executed by humans using an electronic platforms, an the second type is automated trading, where instructions are executed by computers algorithm, with a little or no human intervention. This second type is also called high frequency trading or HFT because of the very short term holding of securities.
HFT is also divided into two type:
“Algorithmic execution: a human trader decides to trade but uses an electronic trading program to execute the trade. This is often used for larger orders. For example, the program may use smart order routing to choose where to best trade, or it may use a time- or volume-weighted method to execute the dealer’s trade to achieve the best price.2 Bank traders may use this type of approach to trade via an aggregator; real money investors may use a time-weighted approach to drip- feed a large order to the market.
Algorithmic trade decision-making: a firm builds a model to initiate a trade based on certain key input parameters such as order book imbalance, momentum, correlations (within or across markets), mean reversion, and systematic response to economic data or news headlines. Once a trade decision has been made, the algorithm also executes the trade. Banks’ automated risk management tools may also use this method to offset risk automatically. Hedge funds engaged in model- based strategies and specialized HFT funds operate in a similar fashion.”
(High-frequency trading in the foreign exchange market Report submitted by a Study Group established by the Markets Committee. This Study Group was chaired by Guy Debelle of the Reserve Bank of Australia. September 2011)
This article is going to emphasize on the Algorithmic trade decision making according to the video above, and talk about its impact on the players and the market.
The new players that are using this technics (mainly large banks, hedge funds, and mutual funds) make profits on basis of trading large number of positions in very short amount of time (second or micro second). By taking advantage from very fast and powerful computers, they are able to get any market information shortly before all other players (other firms, individual traders...), so they can detect any profitable trading opportunity in the marketplace and translate a micro-second to millions or even billions of dollars.
To earn this competitive advantage has attracted a considerable number of players. Five years ago, 30% of the traded stocks where performed by High Frequency Traders. Today, the number has increased to 70%. To have a vision on how the emergence of new technologies which make the use of HFT possible, I would like to see how new technology changed the structure of FX (Foreign Exchange) market.
To read more about the: Research Study
Hi! I read your blog. Its so nice.RIMAR’s multi-strategy asset management combines quantitative models, artificial intelligence and deep learning to produce algorithmic trading strategies targeted to out-perform the benchmark in a variety of market conditions while reducing volatility by enforcing a fixed, pre-defined risk level. RIMAR is NOT a High-Frequency Trader.For this reason, we consider ourselves as much a technology Hedge Funds Company as an investment firm. The growth of a client’s portfolio is in our best interest, as we believe that a satisfied client makes for the best ambassador.
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