High Frequency Trading

1159 Words5 Pages
In the Last Decade No other Development or Trend has had more impact on Trading and Exchanges around the world than High Frequency Trading. There has been a lot of Noise around HFT as the new Buzzword and anyone involved with the Capital Markets Industry is bound to be swept away by it. There is also a Lot of confusion around HFT as people associated with the Industry from Investors to Regulators grapple with a Lot of questions ranging from what is it to what is going to happen to me because of it. There are lot of strong views around HFT ranging from Optimism heralding it as tool which enhances Market Efficiency, Better Price Discovery and as a Ultimate Weapon to generate absolute Alpha in Post Crisis Global Markets to extreme pessimism denouncing it as a weapon of Mass Destruction to destroy already fragile Global Markets and to Skepticism dismissing it as another fad. In our view HFT is one of the most significant Development that has Impacted Trading and Capital Markets industry in Last Decade. HFT is a reflection of various Technological Advances and is created by amalgamation of the Technology advances in various areas ranging from Complex Events Processing, High Speed Networking and Advancements in Server/Storage Technology. The Paper provides a brief overview on HFT and Trends driving its growth and proceeds to analyze Impact of HFT on Overall Market Structure and Market Participants. It also provides insights in to evolving future of HFT from a Regulatory and Technology Perspective. What is HFT? Algorithmic Trading Algorithmic Trading is Trading based on Predefined set of algorithms based on variety of factors like Price, Volume, Asset Class, Market, Timing etc. Main purpose of Algorithmic Trading is to Deliver Expected... ... middle of paper ... ...n cost of such a system will impact the margins of the HFT firms. • According to the European Commission’s MIFID II proposal, the trading venues should also test their systems to check if they are resilient to increased order flows and also place circuit breakers to halt trading if there are unusual price movements. • There should also be a system in place to check the ratio of orders placed to the transactions that is placed in the system by a member or a market participant. HFT firms will have to play the role of market markers, thus providing liquidity to the market and at the same time share the trading strategies with the regulators. • HFT firms will have to manage the transaction speeds and also reduce the ratio of number of orders placed to the number of orders cancelled. The play on speed reduces the key advantage the HFT firms had over the retail investors.
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