Wait a second!
More handpicked essays just for you.
More handpicked essays just for you.
The effedt of high frequency trading system in financial market
Don’t take our word for it - see why 10 million students trust us with their essay needs.
1.0 High Frequency Trading 1.1 What is High Frequency Trading High frequency trading is a form of automated trading that uses super computers to transact or process mega transaction orders at super fast speed, which are mostly measured in microsecond or milliseconds. ( Investopedia, n.d) with the aim to identify and arbitrage temporary market inefficiencies that are created by the competing interests of market participants (Aldridge,2013) Algorithms, low latency technology, high message rates and high speed connections are the 4 main characteristics in the performance of a High Frequency Trading. Algorithms is a set of instructions for accomplishing a given task. So a trading algorithm is just a computerized model with steps to trade an order in a specific way (Johnson, 2010) The algorithms in HFT are for the purpose of decision making, order initiation, generation, routing or execution for each individual transaction without a human execution. (Aldridge, 2013) The low latency technology infrastructure on the other hand is a must for high frequency trading. This infrastructure is designed to minimize response times, including its proximity and co-location services which thus improves the execution speed (Cisco, 2014) Therefore, computers play an very important role in replacing slow humans in the trading decisions. Next on is the high message rates and speed connections in HFT which relates to the response speed for market order entry , orders quotation and speed for cancellation. 1.2 High Frequency Trader’s Strategies High Frequency Traders uses various strategy when performing HFT in the market. Such as for arbitrage strategies, directional event based strategies, automated market trading and liquidity detecti... ... middle of paper ... ...[Accessed: 6 Apr 2014]. Tabb Group; Rosenblatt Securities. 2014. Declining US High frequency trading. [image online] Available at: http://www.nytimes.com/interactive/2012/10/15/business/Declining-US-High-Frequency-Trading.html?ref=highfrequencyalgorithmictrading&_r=0 [Accessed: 10 Apr 2014]. Touryalai,H,2014. NY AG’s New Crackdown Targets High Frequency Trading. [online] Available at: http://www.forbes.com/sites/halahtouryalai/2014/03/18/ny-ags-new-crackdown-targets-high-frequency-trading/ [Accesed:25 March 2014] Wagner, R. and Tan Bhala, K. 2011. High Frequency Trading - Financial Ethics - Seven Pillars Institute. [online] Available at: http://sevenpillarsinstitute.org/case-studies/high-frequency-trading [Accessed: 8 Apr 2014]. Wikipedia.2014. 2010 Flash Crash. [online] Available at: http://en.wikipedia.org/wiki/2010_Flash_Crash [Accessed: 23 March 2014]
The threat of online competitors is also present to every discount broker that has not switched to online trading or chooses to remain with their current business model and not offer online services. These online trading sites have unique trading capabilities that otherwise are not present at Edward Jones. They offer sound advice on stocks and other investments instantly. Each customer has to call their Edward Jones advisor in order to place a trade. This makes sense to Edward Jones because they want to help prevent the rash decisio...
The goal is to teach you to wear the glasses of a professional trader who sees the difference between low and high-probability trades. With these new glasses, your trading account gradually reflects the consequences of making high-probability trades. With more money in your trading account, you can buy more contracts. You experience the law of compounding, and your account grows exponentially.
Mutual funds can be bought or sold based on that day’s closing price. ETFs can be bought or sold intraday, you can rapidly enter and leave the market throughout the trading day. This offer investors the chance to wager on the direction short-term market movements – daily fluctuations of securities.
Although traditional transactions are completed in a matter of seconds, they also require various middlemen who complicate the process significantly, are not available to everyone, and even take a cut of the transaction.
Cheap and efficient trading is what securities traders wanted and that is what they got. Volumes transacted saw unprecedented increases, with the average daily number of trades going through the ceiling”(1.) This attests to the idea that with the advances made in technology today, Wall street will not be able to keep up. The “nerds” of society will be able front run the stock market and make more money in seconds than anyone could ever imagine.
Treynor, Jack L and Dean LeBaron. "Insider Trading: Two Comments." Financial Analysts Journal May/June 2004: 10-12.
Mackay, Tim. "The Ethics Of The Wolf Of Wall Street." Charter 85.2 (2014): 67.Web. 23 Mar. 2014.
It is also unethical for SG to ignore the abnormally high trading volume of JK until it became a serious problem. SG is also one of the fiduciaries in handling the clients’ resources for their best interests. However, Kerviel revealed in his book that his practice was common among traders in SG but the senior management did not carry out actions to prohibit it (Kerviel, 2010). This shows that SG probably aimed at earning the largest profits for the shareholders by ignoring the potential risks ...
Pagnotta, E & Philippon, T. (2010). The Welfare Effects of Financial Innovation: High Frequency Trading in Equity Markets. Available: https://editorialexpress.com/cgi-bin/conference/download.cgi?db_name=SED2011&paper_id=1246. Last accessed 04/12/11.
... etc. to customers and interact with them in real time, which can greatly impact customer loyalty. Again, time reductions represent a powerful benefit, and they are projected to increase with the continuous advancement of processing capabilities.
A new day on Wall Street. The Internet is changing the way the brokerage industry does business. Today more and more investors are electing to trade via the Internet and avoid contact with a broker all together. Are the days of the large full service broker over or will there be a compromise between full service and self-direction? Has the rapid advancement in information technology helped the brokerage industry or hurt it? What role will IT have on the future of trading? Just a few years ago all trades were done by calling a brokerage and talking to a broker who usually tried to push some hot stock and charged you a large sum to purchase the shares you wanted. The 70’s gave way to a new era of discount brokers. The discount brokers provided the means to make trades at a significantly lower cost but at the expense of less informative and directed services. These discount firms utilized new computer technologies to process trades and opened up investment opportunities for many that would not have previously considered purchasing securities. With improved IT capabilities and the introduction of the Internet the discount brokers were able to open the door even further by reducing trading costs and developing user friendly platforms for investors. The Brokerage industry is one driven by quality customer service and high profits. Investors want to maximize there investments at a reduced cost but still receive the highest level of service and information available. In the past investors were restricted by the amount of control they had over their investments, brokers made recommendation, pushes, and did the actual purchasing. Today with the addition of the PC and online capabilities investors can choose what, where and when they invest. By utilizing online resources investors can perform the research and analysis that was once primarily done by brokers. This new technology is having a dramatic effect on the way brokerages operate. The once small discount brokers are utilizing the Internet to take over a whole new market segment and the larger full service brokerage companies are rallying to add online services. This paper will explore these effects and how the industry is responding as well as address the questions raised in the opening. Selling securities via the Internet is easy and fast. Brokerage firms are offering their services on the Internet and this is reshaping the industry.
The efficient market, as one of the pillars of neoclassical finance, asserts that financial markets are efficient on information. The efficient market hypothesis suggests that there is no trading system based on currently available information that could be expected to generate excess risk-adjusted returns consistently as this information is already reflected in current prices. However, EMH has been the most controversial subject of research in the fields of financial economics during the last 40 years. “Behavioural finance, however, is now seriously challenging this premise by arguing that people are clearly not rational” (Ross, (2002)). Behavioral finance uses facts from psychology and other human sciences in order to explain human investors’ behaviors.
These are the machines that have helped greatly increase the buying and selling of stocks over the past few years. There are great advantages to trading today over the situation that past traders had. The biggest beneficiaries of this new technology are investors themselves. They have all day to trade instead of trading only during market hours, they have more stocks to choose from, and the markets are very high so people are making a lot of money.
The basic theory describes the information efficiency of the market is the Efficient Markets Hypothesis (EMH). The information efficiently is classified according to how fast and accurate security prices react to new information, in such a way that nobody be able to get abnormal return. All information can be divided into three types: past information, public available information and all information. In accordance with the Fama’s c...
In the course of years of stock market study, two quite distinct schools of thought have arisen, two radically different methods of arriving at the answers to the trader’s problem of what and when. In the street jargon, one of these is commonly referred to as the fundamental analysis or statistical, and the other as the technical. The term technical in its application to the stock market has come to have a special meaning. It refers to the study of the action of the market itself as opposed to the study of goods in which the market deals. Technical analysis is the science of recording, usually in graphic form, the actual history of trading (price changes, volumes, and transactions, etc) in a certain stock or in “the averages” and then deducing from that pictured history the probable future trend. According to Park and Irwin (2007) recent studies indicate that technical trading strategies consistently produce economic profits in a range of speculative markets at least until the early 1990s. From a total of 95 recent studies, 56 studies find positive results regarding technical trading strategies, 20 studies obtained negative results, and 19 studies indicate mixed results.