High Frequency Trading – When You Feel the Need…for Speed
Line BreakAuthor: tester (10 Articles)
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Also I would like to thank Iliya Talman for helping me writning this article.
Of the numerous trading market players, why is it that so few publicize their use of High Frequency Technology (HFT)? Perhaps it is due to the stigma attached to HFT usage, and its connotation of manipulation and improper risk management. Even thought most of the market participants decline to identify their algo usage, recent news reports exposed Goldman Sacs, Tradeworx, DRW Trading, and Penson GHCO as HFT users. As a result, the FIA is leading the lobby for these firms in opposition of the new SEC rulings to tag HFT traders. Nevertheless, despite the SEC’s efforts to regulate algo traders, many of the HFT firms are not based in the United States, and are therefore immune to U.S. regulations.
The HFT market specifically concentrates on equity related products: equity shares, future contracts or the options. By reducing the spread between the buyer and seller, algo trading benefits the most liquid stocks, while all other stocks display higher spreads and more volatility.
Currently, the U.S. press buzz surrounding the controversial SEC rule change regarding HFT usage has Congress struggling in a stir. According to the United States Senator from Delaware, Ted Kaufman, who publically deplores HFT usage, “It is time to end the Wild West environment in which high frequency trading firms are unbounded by effective surveillance and the possible detection of any manipulative trading strategies. This is a start, but much more needs to be done.” Kaufman believes that requiring algo trading firms to comply with government regulation will discourage inequitable market manipulation, while also providing proper risk management access.
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The NASDAQ is one exchange that utilizes high frequency trading technology, offering the greatest benefits to HFT traders. Via flash orders, algo firms capitalize on a 0.03 second head start over other market players. And, this enormous advantage has been exposed by numerous news sources; specifically, in a recent New York TimesT article and a Wikinvest story.
Alternatively, although the NYSE does not use flash order technology like NASDAQ, other trading firms like Bright Trading LLC still manage to pocket billions using their HFT software.
But what’s the status of high frequency trading in our local market?
Unlike the NYSE and NASDAQ, the Tel Aviv Stock Exchange has not updated its exchange trading technology since 2006. The archaic system does not allow more than 100 operations to be carried out per second, and thus milliseconds provide no added value to traders. Along with lower trading volumes, strict regulations prohibit the use of high frequency technology on Israel’s stock exchange. Since there are currently only 26 stock members allowed access to TASE, each member is aware of what technology is in use, and therefore an unfair advantage would be instantaneously identified and banned.
Line BreakAuthor: tester (10 Articles)
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high frequency trading
