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Transcript of HFT
APPEL NASDAQ'S Quotes
Who are High Frequency Traders ?
Propriety trade firms
Market makers specialist (spread)
Quantitative hedge funds
Proprietary trading (also "prop trading" or PPT) occurs when a firm trades stocks, bonds, currencies, commodities, their derivatives, or other financial instruments, with the firm's own money as opposed to its customers' money, so as to make a profit for itself.
High Frequency Trading
what is High Frequency Trading?
Flash Crash 6 may 2010
Jim Simons, investment manager of Renaissance Technologies earned $ 2.5 billion alone in 2008
separated from low frequency trading (traditional)
Traditional trading model (manual fashion)
very fast (sub millisecond) execution
very high throughput of order and trades
short holding period
increased market efficiency
Innovation in computer technology
Stabilization of market systems
HFT in which kinds of Assets?
brokers and exchange
1st electronic dealing systems
not the same thing
algorithmic trading is where computer algorithms generate or manage orders
High Frequency Trading is subset algo trading
A slow-moved mutual fund submits an order to purchase
10000 shares of APPLE
100 blocs X 100 shares
with a Max Price of $455.40
High Frequency Traders
Get to "Flash orders"
Before that order is sent to the broad marketplace,
it is routed to high-frequency traders for 30 milliseconds who gets a valuable insight
The high-frequency traders,
knowing that an order is coming,
flood the market with buy orders,
scooping up all available shares
of APPEL at 455.20
Resell to investor
But HFT cancel orders in milliseconds!
Almost all shares of APPEL
are sold at $455.39
flash orders - front running
add volatility to the market
Not fair for low traders
Definition of algorithm
a process or set of rules to be followed in calculations or other problem-solving operations, especially by a computer
The events on May 6, 2010:The so-called Flash Crash was a brief period of extreme market volatility on May 6, 2010. That day, the Dow Jones Industrial Average (DJIA) fell by
points within seconds, which marks the biggest one-day decline on an intraday basis in the history of DJIA stock index.