high frequency trading
A recent story in Advanced Trading goes after some of the minutae of High Frequency Trading and provides a glimpse of the total value that HFT may provide to behemoth PT powerhouses such as Goldman Sachs. [1]
High frequency trading means you measure your holding period in seconds (sometimes even in hundreds of milliseconds). [2]
If the calls I am getting from headhunters are any indication, the hot area now is high frequency trading. [3]
In high frequency trading, you analyse trends in tick-by-tick data and make buy / sell decisions out of it. [2]
Latency Intelligence’ technology gives high frequency proprietary traders the low latency they need to get the freshest market data and react first. [...] High frequency proprietary traders use complex algorithms to quickly analyze vast quantities of streaming market data to execute trading strategies. [4]
High frequency trading did well because it thrives in an environment of high volatility and demand for liquidity, and 2008 was a hot house for both. [3]
And as the market keeps going up day in and day out, regardless of the deteriorating economic conditions, it is just these HFT’s that determine the overall market direction, usually without fundamental or technical reason. [1]
The high frequency trader is basically a stand-alone market maker; he is sitting there to provide liquidity to others. [...] The various financial firms who had to be as fast as everyone else then shelled out an aggregate of hundreds of millions of dollar to upgrade, so that they could now execute trades in thirty milliseconds rather than forty milliseconds – or whatever, I really can’t remember, except that it is too fast for anyone to care were it not that other people were also doing it. [3]
The Correlix Latency Intelligence Suite utilizes advanced algorithms to optimize market data and trading infrastructures and provide real-time monitoring and analysis tools to measure and manage latency. [4]
The article presents a very valuable perspective on just why HFT is so critical these days, especially when cash traders go for 6 hour Starbucks breaks between 10 am and 3:30 pm: “high frequency trading firms, which represent approximately 2% of the 20,000 or so trading firms operating in the US markets today, account for 73% of all US equity trading volume. [1]
Only the biggest, fastest computers will be making money consistently. [5]
A second reason is that high frequency trading is embroiled in an arms race. [3]
These companies include proprietary trading desks for a small number of major investment banks, less than 100 of the most sophisticated hedge funds and hundreds of the most secretive prop shops, all of which operate with one thing in mind—capture profit opportunities by being smarter and faster than the closest competition.” [1]
Sources:
[1] Zero Hedge: Goldman’s $4 Billion High Frequency Trading Wildcard
[2] Wilmott Forums - what is high frequency trading?
[3] Rick Bookstaber: The Arms Race in High Frequency Trading
[4] Correlix - Latency Intelligence for Trading and Market Data
[5] High Frequency Trading roundtable | Themis Trading Blog