high frequency trading
In this “high frequency trading” computers make the decision to initiate orders based on information that is received electronically, before human traders are even aware of the information. [...] In electronic financial markets, algorithmic trading or automated trading, also known as algo trading, black-box trading, high-frequency trading or robo trading, is the use of computer programs for entering trading orders with the computer algorithm deciding on aspects of the order such as the timing, price, or quantity of the order, or in many cases initiating the order without human intervention. [1]
The media recently flipped the floodlights on the new black box de jour: High Frequency Trading (HFT). [2]
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. [3]
If the calls I am getting from headhunters are any indication, the hot area now is high frequency trading. [4]
High-frequency trading, long an obscure corner of the market, has leapt into the spotlight this year. [...] Concerns that some traders are taking advantage of less fleet-footed investors has drawn the attention of regulators and members of Congress. [...] They hunt for “signals,” such as the movement of interest rates, that indicate which way parts of the market may move in short periods. [5]
High Frequency Traders claim to be market makers — a necessary component to the auction process. [2]
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. [3]
I have some experience in this area because I did some work for a major CBOE market maker back in 2000-2002. [...] Only a handful of people who work closely with the exchanges truly understand HFT, so I asked for some color from my friend and top pro quant trader Fari Hamzei from Hamzei Analytics. [2]
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. [3]
The high frequency trader is basically a stand-alone market maker; he is sitting there to provide liquidity to others. [4]
The program trade at the NYSE would be pre-programmed into a computer to enter the order automatically into the NYSE’s electronic order routing system at a time when the futures price and the stock index were far enough apart to make a profit. [1]
Sources:
[1] Algorithmic trading - Wikipedia, the free encyclopedia
[2] Demystifying High Frequency Trading | Wall St. Cheat Sheet
[3] Zero Hedge: Goldman’s $4 Billion High Frequency Trading Wildcard
[4] Rick Bookstaber: The Arms Race in High Frequency Trading
[5] What’s Behind High-Frequency Trading - WSJ.com