HFT

A type of algorithmic trading characterized by high speeds, high turnover rates, and high order-to-trade ratios. HFT firms make up the low margins with incredibly high volumes of trades, frequently numbering in the millions.

  • Sophisticated algorithms
  • Co-location
  • Short-term investment horizons
  • Sophisticated technological tools and computer algorithms to rapidly trade securities
  • Proprietary trading strategies carried out by computers to move in and out of positions in seconds or fractions of a second

Finance

  • Value at risk (VaR)
  • A derivative is a price guarantee
  • Buyer/seller (counterparties), underlier, future price, future date,
  • Forward, futures, swap, option
  • Liquid - more traded on a single day
  • Fungible - one is as good as another
  • A financial instrument is a standard agreement (contract) that bestows certain financial rights and/or responsibilities to its parties
  • Zero sum games
  • Hedging, manage uncertainty
  • Speculation, wager on uncertainty
  • Taking a view - gambling
  • Financial leverage
  • Market makers, merchants of derivatives arbitrageurs, mispriced security search

Trading protocols

  • FIX - Financial Information eXchange
  • OUCH - a digital communications protocol that allows customers of the NASDAQ (National Association of Securities Dealers Automated Quotations) to conduct business in the options market.
  • SAIL
  • Millenium - LSE

Securities

See Wikipedia.

There are 3 major blocks in an Algo Trading System

See details.

  1. Market Data Handler (e.g., FAST handler)
  2. Strategy Module (e.g., crossOver strategy)
  3. Order Router (e.g., FIX router)

Order management system

An order management system (OMS) is an electronic system developed to execute securities orders in an efficient and cost-effective manner. Brokers and dealers use order management systems when filling orders for various types of securities and are able to track the progress of each order throughout the system.

Fibre versus microwave

Terminology

Bloomberg system

  • IM between clients
  • Most people in investment banking use bloomberg
  • Bloomberg Terminal
  • All about derivatives Michael Durbin
  • FX - currencies
  • Bloomberg lets you add trendiness etc.
  • Banks - sale side (selling product, research) / market makers
  • Two way price
  • Middle men (like eBay)
  • Proprietary trading (ceased because of regulations, own account)
  • Many clients on the buy side - invest manager, hedge fund, pension
  • Ask banks for prices on each thing

Sell side

  • Economists
  • Strategists
  • Providing research
  • Standard chartered - retail presence (taking deposits from consumers)
  • Old school - give a loan against deposit
  • IPO
  • Issue bond to bunch of investors
  • Small investment managers

Buy side

  • Algorithmic trading
  • Options pricing model