The High Frequency Game Changer E-Book

Paul Zubulake

• Herausgeber: John Wiley & Sons
• Kategorie: Fachliteratur
• Serie: Wiley Trading Series
• Sprache: Englisch

Seitenzahl: 212

Veröffentlichungsjahr: 2011

Beschreibung

The financial industry's leading independent research firm's forward-looking assessment into high frequency trading Once regarded as a United States-focused trend, today, high frequency trading is gaining momentum around the world. Yet, while high frequency trading continues to be one of the hottest trends in the markets, due to the highly proprietary nature of the computer transactions, financial firms and institutions have made very little available in terms of information or "how-to" techniques. That's all changed with The High Frequency Game Changer: How Automated Trading Strategies Have Revolutionized the Markets. In the book, Zubulake and Lee present an overview of how high frequency trading is changing the face of the market. The book * Explains how we got here and what it means to traders and investors * Details how to build a high frequency trading firm, including the relevant tools, strategies, and trading talent * Defines key components common to HFT such as algorithms, low latency trading infrastructure, collocation etc. The High Frequency Game Changer takes a highly controversial and extremely complicated subject and makes it accessible to anyone with an interest or stake in financial markets.

Leseprobe

Contents

Cover

Series

Title Page

Copyright

Dedication

Introduction

Acknowledgments

Chapter 1: Birth of High Frequency Trading

DEFINING HIGH FREQUENCY TRADING

WHO ARE THE HIGH FREQUENCY TRADERS?

IMPACT OF HIGH FREQUENCY TRADING

BUILDING A HIGH FREQUENCY TRADING TEAM

Chapter 2: Market Structure

ORDER HANDLING RULES OF 1997

GROWTH OF ELECTRONIC COMMUNICATION NETWORKS

REGULATION NATIONAL MARKET SYSTEM

MARKET FRAGMENTATION VERSUS COMPETITION

DARK POOLS

Chapter 3: Trading Infrastructure

RISE OF HIGH PERFORMANCE TECHNOLOGY VENDORS

KEY COMPONENTS OF HIGH PERFORMANCE INFRASTRUCTURE

FEED HANDLERS

TICKER PLANT

MESSAGING MIDDLEWARE

STORAGE

NETWORKING

COLOCATION

SPONSORED ACCESS

Chapter 4: Liquidity

HFT AS LIQUIDITY PROVIDERS

FLASH CRASH

Chapter 5: Trading Strategies

EXAMPLES OF ALGORITHMS

ORDER TYPES

FLASH ORDERS

HIGH FREQUENCY TRADING AND PREDATORY STRATEGIES

Chapter 6: Expansion in High Frequency Trading

FUTURES

FIXED INCOME

FOREIGN EXCHANGE MARKET

EQUITY OPTIONS

OVER THE COUNTER DERIVATIVES

EXPANSION INTO GLOBAL MARKETS

Chapter 7: Positives and Possibilities

COMMODITIZING HIGH FREQUENCY TRADING

TRADING TECHNOLOGY DEMANDS AND PREFERENCES

INTERNAL FOCUS

CHOOSING VENDORS

FINDING THE NEXT OPPORTUNITY

ISSUES AND RISKS

ORDER ROUTING GETS SMART

SMART ORDER ROUTING'S FUTURE

IS ARTIFICIAL INTELLIGENCE NEXT?

ECONOMIC INDICATORS

NEWS

SECURITIES AND EXCHANGE COMMISSION FILINGS

THE PSEUDO-SEMANTIC WEB

GOING GLOBAL

THE NEXT WAVE

Chapter 8: Credit Crisis of 2008

U.S. FEDERAL RESERVE

REGULATORY AGENCIES

CREDIT AGENCIES

POLITICIANS

END-USERS OF DERIVATIVE PRODUCTS

RECENT REGULATORY HISTORY

FINANCIAL MODERNIZATION ACT OF 1999

COMMODITY FUTURES MODERNIZATION ACT OF 2000

DODD FRANK WALL STREET REFORM ACT OF 2010

ENDING TOO BIG TO FAIL BAILOUTS

CREATING TRANSPARENCY AND ACCOUNTABILITY FOR DERIVATIVES

HEDGE FUNDS

CREDIT RATING AGENCIES

EXECUTIVE COMPENSATION AND CORPORATE GOVERNANCE

IMPACT OF POTENTIAL REGULATIONS AND RULE CHANGES—SECURITIES AND EXCHANGE COMMISSION CONCEPT RELEASE

Chapter 9: Conclusion

Glossary

About the Authors

PAUL ZUBULAKE

SANG LEE

Index

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Library of Congress Cataloging-in-Publication Data

Zubulake, Paul. The high frequency game changer : how automated trading strategies have revolutionized the markets / Paul Zubulake, Sang Lee. p. cm. – (Wiley trading series) Includes index. ISBN 978-0-470-77038-2 (hardback); 978-1-118-01966-5 (ebk); 978-1-118-01967-2 (ebk); 978-1-118-01968-9 (ebk); 1. Electronic trading of securities–United States. 2. Investment analysis–United States. I. Lee, Sang. II. Title. HG4515.95.Z83 2011 332.64′20285–dc22 2010045235

To my wife Karen and my sons, Zachary and Alexander, as well as my parents George and Mary and my sister Laura —Paul Zubulake

To my wife Yong and my kids, Sage, Kayla, and Rhodes —Sang Lee

Introduction

The financial markets are part of everyone's life. People may not realize it but without a thriving capital market a country's economy would not exist. Open five days a week, fifty-two weeks a year, the daily ups and downs of the value of all markets causes consternation for the nation. The equity markets in particular are by far the most watched and dissected markets of all. They are covered by multiple financial television networks, hundreds of periodicals, not to mention thousands of internet sites. The equity markets' performance has become a daily ritual for society. There are of course many other markets that trade concurrently with the equity markets. Interest rates, currencies, commodities all have their own marketplaces listed and over-the-counter (OTC) that trade with large daily volumes.

So how does a marketplace work? This question may seem to be simple, but the answer is much more complex than the public realizes. In its simplest form a market matches up buyers and sellers at a certain price point. Once this occurs a transaction has taken place. These transactions take place on some type of execution venue. There are multiple types of venues where buyers and sellers are matched. In the equity markets, the markets have grown from a single entity, the New York Stock Exchange where all listed stocks are traded via a human based specialist model, to a vast network of electronic exchanges, ECNs (electronic communication networks), and dark pools. The transformation from a human based model to an electronic model has been one of the most important technological advances of modern investing. This transformation has not come without controversy. Without any doubt the most controversial aspect of this transformation has been the change in the way liquidity is provided to the many buyers and sellers in the market.

Liquidity is the amount of a security that is available on the bid/buy and offer/sell of a market, as well as the depth of both buyers and sellers. Conventional wisdom may see these market participants as the ones who already have a position in the security, but the reality is that the liquidity provider more commonly known as a market maker has no position at all. The growth of electronic trading was the ultimate game changer in the equity markets. Instead of calling in your orders to a broker who then would execute it via a floor exchange the order now is electronically transmitted to the various market venues.

The market had a new player, but it was not a person, it was a machine that could replicate the role of a liquidity provider but at a much higher speed and level of efficiency. It never gets tired and it can process information at a speed that a human could never do. Automated trading had been born and the markets have not looked back. The minds behind the machines have come from many different areas, the institutional trader, the floor trader, and the quantitative trader. Those who used their minds to trade have now developed many different types of trading strategies to provide the marketplace with orders to interact with the traditional players in the market. They trade often and in most cases hold their positions for very short time periods. High frequency trading is now part of the mainstream lore of the financial markets. Sometimes controversial and most times misunderstood, the role of the automated trader is one of major importance to today's ever-changing marketplace.

Acknowledgments

We would first like to thank Adam Honore, our research director at Aite Group. He was responsible for the technology content of this book and without Adam's contribution this book would have never have been completed. Additional thanks goes to the Aite Group team specifically the founding partners Gwenn Bezard, Frank Rizza, and Gerald Clemente. Special thanks to the Wiley team, Senior Editor Laura Walsh and Development Editor Judy Howarth. We appreciate their guidance and patience. Lastly we wanted to acknowledge the many contacts in the automated trading industry that we have spoken with over the last few years.~Without their candid information, the knowledge and data produced through this book and our research would have never been possible.

Chapter 1

Birth of High Frequency Trading

Equity Markets Go Electronic

Electronic trading defines modern day trading in global equities markets. While one can point to many different factors for the eventual proliferation of electronic trading, it is important to acknowledge that without the basic market structure framework for accommodating electronic trading, today's market reality of sub-second trading and hyper-competitive market centers would be unthinkable.