Basics of High Frequency Trading
Nanex released a video showing the results of half a second of worldwide high frequency trading with Johnson and Johnson stock. I simply sped up the footage to get a better feel of what it looked like. Blow Your Mind.
CNN’s Maggie Lake gets a rare look inside the super-fast trading industry.
Dr. Sean Gourley is the founder and CTO of Quid. He is a Physicist by training and has studied the mathematical patterns of war and terrorism. He is building tools to augment human intelligence.
Citadel Group, a high-frequency trading firm located in Chicago, trades more stocks each day than the floor of the NYSE.
One of the scariest high frequency trading algos ran in the electronic S&P 500 futures (eMini) contract on January 14, 2008 starting at 2:01:11Eastern. During its 7 second reign, there were over 7,000 trades (52,000 contracts), and the price eventually oscillated within milliseconds, the equivalent of about 400 points in the Dow Jones Industrial Average!
HFT is controlled by proprietary trading firms and spans across multiple securities, including equities, derivatives, index funds and ETFs, currencies and fixed income instruments.For HFT, participants want the following infrastructure in place:
– High speed computers, which need costly and regular hardware upgrades;
– Co-location.
– Real time data feeds, which must avert even the delay which could affect profits; and of a microsecond
– Computer algorithms, which are the heart of HFT and AT.
Benefits of HFT
– HFT is beneficial to traders, but does it help the total marketplace? Some market that is overall gains that HFT assistants cite contain:
– Bid-ask spreads have reduced due to HFT trading, making markets more efficient. Empiric evidence contains that after Canadian authorities in April 2012 imposed fees that deterred HFT, studies indicated that “the bid-ask spread rose by 9%,” possibly due to diminishing HFT trades. And thus facilitates the effects of market fragmentation.
– HFT assists in the price discovery and price formation process, as it is centered on a high number of orders (see related: How The Retail Investor Profits From High Frequency Trading.)
