Forex Books - page 2

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High frequency trading ...

A short presentation of high frequency trading

Files:
hft.pdf  620 kb
 

Market Manipulation and Algorithmic Trading

It falls in the same category as the high frequency trading with some more information of it

 

Order Dynamics in a High-Frequency Trading Environment

Order Dynamics in a High-Frequency Trading Environment

Over the last decade, high-frequency trading has become one of the most important driving factors in securities markets. Both market observers and researchers agree that a large part of the traded volume on major stock exchanges such as NASDAQ, Deutsche Borse, or the NYSE is traded by algorithms and not by humans. However, the de nition of high-frequency traders is still somewhat di use. Hendershott et al. (2011, p. 1) de ne them in a very general but still accurate way as `computer algorithms [that] automatically make certain trading decisions, submit orders, and manage those orders after submission.
 

Effective Trade Execution

Effective Trade Execution (high frequency trading)

2. TRADING ALGORITHMS CLASSIFICATION

The first problem when exploring the subjects of AT is the lack of a consistent set of definitions regarding algorithmic processes. However, Gomber et al. (2011) contends that HFT may be viewed as a subgroup of AT as professional traders observe market parameters or other information in real time and properly design specific trading strategies aimed at achieving specific goals without human intervention. These goals generally apply to DMA or SA technologies for order routing.

The main characteristics of AT include the following: (1) automated order submission; (2) automated order management; and (3) use of DMA. In contrast, the main characteristics of HFT include the following: (1) the ability to handle a large number of orders; (2) rapid order cancellation; (3) proprietary trading; (4 no significant position at the end of day; (5) a very short holding period and low latency requirement; and (6) co-location/proximity services. According to the Securities and Exchange Commission (SEC), HFT refers to “professional traders acting in a proprietary capacity that engages in strategies that generate a large number of trades on a daily basis.”Brogaard (2010) estimates that HFT accounts for more than 50 percent of the overall daily volume on equity markets.
 

The Good, the Bad, and the Ugly of Automated High-Frequency Trading

The Good, the Bad, and the Ugly of Automated High-Frequency Trading

A quote from the book :

Front running and predatory trading The fact that volatility is positively correlated with HFT on any specific day, such as May 6, 2010, does not of course prove that this is generally so. If HFT resembles the activity of market makers, volatility may decrease, as discussed in the “Good” later. Nevertheless, some HFT strategies taking advantage of short-term correlations have earned an especially ugly reputation. Front-running strategies are often mentioned in media.23 In a typical front-running strategy, a high-frequency trader steps in front of a large institutional order and drive the price to a direction that is beneficial for herself. This can be achieved by for example co-locating a computer server close to a stockexchange, making it possible to react very fast (in milliseconds, or less) to incoming orders. Co-locating has become a profitable business to stock exchanges themselves, limiting their interests to monitor or regulate their clients more.24 The situation is in some ways similar to what the NYSE specialists (nowadays called designated market makers) were able to do years ago. They were the ones who could see the state of the order book and could forecast the direction of short-term price movements with high probability. Thus, similar strategies have been used in the past. The difference is that now speed and competition have replaced the protected status of certain elite groups. The proponents of today's market structure would say that the game has gotten fairer.

"Front-running is an example of predatory trading. Predatory trading, more generally, refers to strategically placed trades that hunt its “prey” by first trading in the samedirection and then reversing the position and making a “kill.”

 

The Rise of the HFT Machines

Felix Salmon opines:

...the HFT world in aggregate seemingly has a mind of its own when it comes to trading patterns. Or, to put it another way, if there’s a pattern here, it’s one incomprehensible to human minds.

High-frequency trading in the stock market from January 2007 to January 2012.

 

Is high-frequency trading inducing changes in market microstructure and dynamics?

This book could be posted even at this thread : https://www.mql5.com/en/forum/181205

Here is just one quote from the book :

Given the above research results, we can clearly demonstrate that HFT is having an increasingly large impact on the microstructure of equity trading dynamics.
 

On the Dark Side of the Market: Identifying and Analyzing Hidden Order Placements

"Trading under limited pre-trade transparency becomes increasingly popular on financial markets. We provide first evidence on traders’ use of (completely) hidden orders which might be placed even inside of the (displayed) bid-ask spread."

 

High Frequency Trading and the New-Market Makers

High Frequency Trading and the New-Market Makers ...

 

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To round up the HFT subject :

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"The majority of HFT based strategies contributes to market liquidity (market making strategies) or to price discovery and market efficiency (arbitrage strategies). Preventing these strategies by inadequate regulation or by impairing underlying business models through excessive burdens may trigger counterproductive and unforeseen effects to market quality. However, any abusive strategies against market integrity must be effectively combated by supervisory authorities."

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The conclusion as of which approach is the preferred one in some "institutions" I leave to common sense (especially in the light of recent "discoveries" regarding the regularity of "financial institutions")

PS: these are all free academic books available at their respective sites. Thanks to all the authors and contributors that put their time and knowledge available to all of us with no further conditions

Files:
high-frequency_trading.zip  1829 kb
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