All About High-Frequency Trading (All About Series) by Michael Durbin

By Michael Durbin

A specified PRIMER ON state-of-the-art such a lot refined AND arguable buying and selling TECHNIQUE

Unfair . . . significant . . . unlawful . . . inevitable. High-frequency buying and selling has been defined in lots of other ways, yet something is for sure--it has remodeled making an investment as we all know it.

All approximately High-Frequency Trading examines the perform of deploying complex machine algorithms to learn and interpret industry task, make trades, and pull in large profi ts―all inside of milliseconds. no matter what your point of making an investment services, you are going to achieve necessary perception from All approximately High-Frequency Trading's sober, aim reasons of:

  • The markets during which high-frequency investors function
  • How high-frequency investors profi t from mispriced securities
  • Statistical and algorithmic concepts utilized by high-frequency investors
  • Technology and methods for construction a high-frequency buying and selling procedure
  • The ongoing debate over the benefi ts, hazards, and ever-evolving way forward for high-frequency trading

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Sample text

The market-maker wants to earn the bidask spread as compensation for the risk of making two-sided markets. The arbitrageur wants to profit by trading mispriced securities, selling the overpriced and buying the underpriced and pocketing the difference. The predictor uses quantitative trading (or statistical arbitrage) techniques to analyze data and use it to make predictions about future price changes, and makes trades to profit from those changes when (and if) those predictions come true. The high-frequency trader, as noted, is essentially a hybrid of the market-maker and shortterm predictor.

19 This is not to be confused with the spread trade, which we won’t get into in this book. 20 The spread of a market (along with bid and offer sizes, known as depth) is often used as an indicator of its liquidity. There is a nagging lack of consensus on a precise definition of liquidity, but people do tend to recognize it when they see it. In a more liquid market, goods “flow” more easily—there is more trading—than they do in a less liquid market because the prices are better to both buyers and sellers (and there are plenty of goods available to trade at those prices).

Here’s the scenario again, with a happier outcome. 06|100 Market-maker Ann is on both the bid and the offer. 06. 07|500 34 All About High-Frequency Trading Ann knows she would earn two dollars if and when someone hits her bid. Rather than risk it, however, she improves her quote by a penny. 05. She returns those shares to whomever she borrowed them from, closing out her short position. 05, she has earned a dollar. The scenarios so far illustrate the risk market-makers take, risk for which they are compensated when they earn the spread.

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