High Frequency Trading

I've read (online) various ways in which HFT works. Now I am not sure which is correct. If someone can please explain, in layman terminology, how HFT works, it would be much appreciated.

Thanks,

SM

 

they steal your money

 

yeah, in milliseconds. and you won't even realize it until few seconds later

 

There are a million definitions for HFT.

I think it is basically a catch-all excuse many use for when they realize they can't trade or make the wrong investments.

 

Funny how your accusation of people who are against HFT's as being bad traders is the HFT's catch-all excuse for their illegal activity.

 

I'm sure he already knows they're money stealing machines, but he's asking technically, how do they work.

 

look up latency arbitrage

 

And so it begins.. again.. and again and again....



To the original poster. Visit http://www.tradeworx.com/ for all sorts of stuff to read that will probably answer your questions.

 

There are two types of HFT, broadly:

1) Being able to distinguish buying pressure and selling pressure, particularly buying pressure.
2) Rebate trading.

The idea is to be first in both cases, either in the limit book in case of 2, or sweeping books in case of 1. Note that in the absence of BP or SP, you can run 2) and collect $ on random trading. When the algo is able to tell that there is BP or SP, it switches to this mode.

I don't know the exact details. There are probably some sort of learning algorithm going on that switches between strategies, or perhaps is running both strategies at once at all times. The idea is that your core earnings come from rebates, and the BP and SP algos just are meant to save the other algo from getting crushed on a non-random directional move.

This is a ten thousand foot overview. The actual details are immensely sophisticated requiring cracker-jack programming and clever people that are able to quantify these things.

 

and algos that do both simultaneously