I went through The Speed Traders: An Insider's Look at the new High-Frequency Trading Phenomenon That is Transforming the Investing World by Edgar Perez at the AUT Library earlier in the week. The book felt somewhat entertaining, not-so-informative for anyone with industry experience, and there was excessive moot around ethical opinions.
History of HFT
So it all started out with firms or departments who specialized in arbitrage, without any particular theoretical edge, needing speed. As competition grew, everyone relocated closer to the exchanges and the rest is history.
Trading Strategies
There are only 3 main categories of strategies involved.
There is a ton of individual strategies/opportunities within each category. The "simplest" category is of course pure arbitrage, and the most complex being Statistical Arbitrage where a robust, theoretical edge must be established.
Is speed alone enough?
No. Competition in this industry is extremely fierce. With big players like Getco spending $2M~/month on IT infrastructure, it isn't feasible to expect any significant edge in strategies heavily dependent on speed.
History of HFT
So it all started out with firms or departments who specialized in arbitrage, without any particular theoretical edge, needing speed. As competition grew, everyone relocated closer to the exchanges and the rest is history.
Trading Strategies
There are only 3 main categories of strategies involved.
- Pure Classical Arbitrage
- Buy-side / Sell-side Execution Algorithms (e.g. buy side at Knight Capital)
- High Frequency Statistical Arbitrage / Automated Market Making
There is a ton of individual strategies/opportunities within each category. The "simplest" category is of course pure arbitrage, and the most complex being Statistical Arbitrage where a robust, theoretical edge must be established.
Is speed alone enough?
No. Competition in this industry is extremely fierce. With big players like Getco spending $2M~/month on IT infrastructure, it isn't feasible to expect any significant edge in strategies heavily dependent on speed.
0 Reflections:
Post a Comment