The Secrets of High Frequency Trading

Sep 6th, 2011 | Filed under: Algorithmic and high-frequency trading, Alpha Strategies, Hedge Fund Strategies, Institutional Investing, Today's Post | By:
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In recent years, advances in telecommunications, computing capacity and financial software platform capabilities have seen huge growth in the field of High Frequency and Algorithmic Trading (now accounting for over 70% of all equity trades placed on US exchanges and in excess of 77% in the UK).  HFT firms (which can often make more than 80 million trades in a single day) often enter and exit trades in thousandths of a second, and are conservatively estimated to generate at least $21billion in profits every year.

To get under the skin of the world of high frequency trading, interviewed Arzhang Kamarei.  Mr. Kamarei is a Partner at Tradeworx, a quantitative investment management firm with expertise in high-frequency and medium-frequency equity market-neutral strategies.  He co-founded Thesys Technologies, a Tradeworx subsidiary, in early 2009 to address the growing technology needs of high frequency traders.

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Author Bio:
Vikas Shah is Founder of the consultancy Thought Strategy and CEO of Swiscot Group (a diversified trading firm). Vikas writes and publishes Thought Economics, a leading journal where he interviews some of the most influential individuals in the world. He is a respected commentator and analyst on global issues, finance and economics and a non-executive to a number of philanthropic organisations worldwide. You can follow him on twitter @MrVikas.

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  1. […] The secrets of high frequency […]

  2. Excellent article. I congratulate Mr Kamerei on providing a very clear explanation of what high frequency trading actually is and how it works.

    Anyone who is asking the question “do HFTs serve a purpose?” should read this article.

    Great use of analogy too, really helps to clarify the issues.

  3. A very fine article. I have always disliked HFTs having the possibly misguided opinion that they are pinching pennies from the average investor. Maybe they are in fact not that bad

  4. Impressive article explaining HFT, although it would help me and the general public, lawmakers, and the mainstream media if was explained more in plain English.

    I fear that many want HFT abolished or taxed out of existence not realizing very long-term buy and hold investors will have annual yields reduced as some estimate as much as two or three percent with a tax and resulting increased spreads and put most short-term or human traders out of business.

  5. […] The secrets of high frequency trading.  (All About Alpha) […]

  6. […] Highly recommended. The Secrets of High Frequency Trading […]

  7. The author writes this article as though HFT is a needed spoke on the wheel of markets. In reality the spoke is now the wheel and the wheel is now a rectangle.

    Our markets are no longer properly functioning markets. The life cycle of an entry onto our markets should be:
    (1) Initial Public Offering
    (2) Company Growth
    (3) Job Creation
    (4) Investor Participation
    (5) Overall Economic Growth

    Where does the HFT guru or author mention any of these factors? In fact, if you look at each one of these factors, since the creation of HFT, every listed factor is in a negative stage of existence.

    It is obvious that the current structure of our markets is not working. 3% rises and declines on a daily basis is not something that investors will stomach. Without investors, the markets are just HFT playgrounds. This is what we have and the SEC needs to address this. The problem is not HFT, the problem is that the SEC has enabled a structure that allows them to exist and profit such as they do.

    Wake up SEC, your markets are no long functioning properly.

  8. […] The Secrets of High Frequency Trading | AllAboutAlpha: Hedge Fund Trends & Alternative Investmen…. Like this:LikeBe the first to like this post. […]

  9. @#7
    Volatility created by HFT? During the Great Depression the average monthly range was +20% to -20%. Should have been HFT back then for less volatility.

    HFT created negative impact on your (1)-(5)? All of a sudden HFT was born the day after the bull market ended March 24, 2000? The tech and dot com boom is over. The government artificially created a housing bull market to take its place and ended in failure and the economy we have today.

  10. […] in telecommunications, computing capacity and financial software platform capabilities have seen huge growth in the field of High Frequency and Algorithmic Trading (now accounting for over 70% of all equity trades placed on US exchanges and in excess of 77% in […]

  11. […] The secrets of high-frequency trading […]

  12. “impressive article”?? I’m a HFT and all he said is that HFT are making markets. With like a dozen exchanges there is definitely a need for market makers.

    The $21billion profit figure seems way too high. That is not made from high frequency trading.

  13. it’s not that hard to trade by automated system with high frequency. it is simply necessary to find an edge and use it over and over again. even if the chance of profit would be 51% + commisions.. then system can be used live

  14. […] More here This entry was posted in Trading. Bookmark the permalink. […]

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