high frequency trading
DESCRIPTION
High Frequency Trading. Here to stay?. Introduction: What is ‘trading’?. -Markets : NYSE, NASDAQ -Companies sell their equity/debt to investors on markets (“ check markets”: http://finance.yahoo.com / ). What is High Frequency Trading (HFT) ? . Types of HFT:. - PowerPoint PPT PresentationTRANSCRIPT
H E R E T O S TA Y ?
HIGH FREQUENCY TRADING
INTRODUCTION:WHAT IS ‘TRADING’?
-Markets: NYSE, NASDAQ-Companies sell their equity/debt to investors on markets (“check markets”: http://finance.yahoo.com/)
WHAT IS HIGH FREQUENCY TRADING (HFT)?
• Types of HFT:Rebate Trading Filter Trading Statistical Arbitrage
Characteristics/ Definition
(Refer to example below)
Monitor for stocks showing significant movement
Seek pricing differentials between correlated markets and securities
Example Rapidly offer sell after posting bid to buy shares
News stories trigger rapid algorithm buys
Correlated stocks like Pepsi and Coca-Cola
Marketing Making
Momentum Trading
Technical Trading
Characteristics/ Definition
Regulatory exemption to reduce spreads by creating market liquidity
Similar to Filter Trading
Find technical steps based on historically repeating patterns
Example Designated market makers (DMMS) obligated to maintain order in market by adding liquidity
Filter Trading with Rebate Trading style
Tracks stocks crossing 5-day moving average
RELEVANCE:WHY SHOULD YOU CARE?
If HTF is beneficial for economic growth and financial success,we should support it
If HTF is detrimental to economic growth and financial success,we should reject it
ADVANTAGES
• 1. Robustness-easily implemented on large scale: over 5 yrs, traders using HFT has doubled
• 2. Efficiency-speed and reduced overhead: “human hand... outclassed… by machines operating in
milliseconds)
• 3. Profits-maximized: ($2.7 bil profits in 2007)
DISADVANTAGESTRIANGLE OF RISK
1. Investor
2. Compan
y
Risk
3.Market
DISADVANTAGESILLEGAL ACTIVITY
-High velocity of HTFenables elusive crime
CONCLUSION:HERE TO STAY
QUESTIONS?
REFERENCES • "Findings Regarding The Market Events of May 6, 2010." SEC. SEC, 30 Sept. 2010. Web. 9 Oct. 2013.
<http://www.sec.gov/news/studies/2010/marketevents-report.pdf>.
• Finger, Richard. "High Frequency Trading: Is It A Dark Force Against Ordinary Human Traders And Investors?" Forbes. Forbes Magazine, 30 Sept. 2013. Web. 9 Oct. 2013.
• <http://www.forbes.com/sites/richardfinger/2013/09/30/high-frequency-trading-is-it-a-dark-force-against-ordinary-human-traders-and-investors/>.
• "How Dangerous Is Algorithmic Trading?" TechRadar. N.p., 8 Oct. 2011. Web. 9 Oct. 2013. <http://www.techradar.com/us/news/world-of-tech/are-pcs-to-blame-for-the-financial-mess-we-re-in-1031898/2>.
• Philips, Matthew. "Knight Shows How to Lose $440 Million in 30 Minutes." Bloomberg. N.p., 2 Aug. 2012. Web. 11 Nov. 2013. <Knight Shows How to Lose $440 Million in 30 Minutes>.
• Philo, Eric S. "High-Frequency Trading Profits Crushed ... but Danger Remains Unchecked." 247wallst.com. 24/7 Wall St, 24 Mar. 2013. Web. 12 Nov. 2013. <http://247wallst.com/investing/2013/03/24/high-frequency-trading-profits-crushedbut-danger-remains-unchecked/>.
• Rogow, Geoffrey. "Rise of the (Market) Machines." Wall Street Journal (WSJ). N.p., 19 June 2009. Web. 9 Oct. 2013. <http://blogs.wsj.com/marketbeat/2009/06/19/rise-of-the-market-machines/>.
• Rowley, Brandon. "The World of High Frequency Trading." T3 Live, 2011. Web. 12 Nov. 2013. <http://historysquared.com/wp-content/uploads/2011/02/clip_image0012.png>.