High frequency trading (HFT)
High frequency trading (HFT) is the use of sophisticated technological tools to trade securities like stocks or options, and is typically characterized by several distinguishing features:
- HFT is highly quantitative, employing computerized algorithms to analyze incoming market data and implement proprietary trading strategies;
- HFT usually implies a firm holds an investment position only for very brief periods of time - even just seconds - and rapidly trades into and out of those positions, sometimes thousands or tens of thousands of times a day;
- HFT firms typically end a trading day with no net investment position in the securities they trade;
- HFT operations are usually found in proprietary firms or on proprietary trading desks in larger, diversified firms;
- HFT strategies are usually very sensitive to the processing speed of markets and of their own access to the market.
In high-frequency trading, programs analyze.....
Algorithmic trading
In electronic financial markets, algorithmic trading or automated trading, also known as algo trading, black-box trading or robo trading, is the use of computer programs for entering trading orders with the computer algorithm deciding on aspects of the order such as the timing, price, or quantity of the order, or in many cases initiating the order without human intervention.
Algorithmic Trading is widely used by pension funds, mutual funds, and other buy side (investor driven) institutional traders, to divide large trades into several smaller trades in order to manage market impact, and risk. Sell side traders, such as market makers and some hedge funds, provide liquidity to the market, generating and executing orders automatically.
Algorithmic trading may be used in any investment strategy..........
How does HFT work?
As an example,
let's assume that a buyer wants to buy 100,000 shares of MSFT. The market price of an MSFT share is $24.10, but the buyer's limit price is $24.40. In other words, the buyer is willing to pay up to $24.40 for each share of MSFT or $0.30 more than its current price.
HFT is able to achieve
almost risk free arbitrage opportunities, those are the types of investment strategies that arbitrageurs and hedge-fund managers use. Here's an example...
Why FPGA in HFT?
This venerable technology has one advantage - it is fast! It takes one clock cycle to do the calculation. Taking a risk calculation that takes 30 microseconds on a general CPU down to 3 microseconds is quite feasible, and in the world of sub millisecond trading, that matters