FX ALGORITHMIC TRADING
then Luddite has been used to describe those opposed to industrialization or new technologies. Te Luddite movement, which began in 1811 and 1812 when mills and pieces of factory machinery were burned by handloom weavers, took its name from the fictive King Ludd. For a short time the movement was so strong that it clashed in battles with the British Army. Measures taken by the British government included a mass trial at York in 1812 that resulted in many executions and penal transportations. Te principal objection of the Luddites was against the introduction of new wide-framed automated looms that could be operated by cheap, relatively unskilled labour, resulting in the loss of jobs for many skilled textile workers. Electronic trading is not a trend; it is difficult to trade non-electronically. 55% of FX Volume is now executed electronically. The question of whether or not high-frequency trading contributes to market stability or to market volatility is the wrong question. In most cases, airplanes do not cause crashes, pilots do. Electronic systems are as good as their makers and executors. In the case of the DOW’s severe drop and recovery, this would likely not have happened if the markets were not already concerned about Greece. What difference does it make if humans were trading or algorithms? In a trading Turing test, how would a
32 FX TRADER MAGAZINE July - September 2010
counterparty know, in an electronic market, if it was a human placing trades via an electronic manual platform, or if it was an algorithm? Banks have designed algorithms to detect fraud and arbitrage based on trading activity, and algo- traders have responded by creating more intelligent algorithms that act like
humans (by placing and removing bids and offers as a human would, for example). Tere is a similar trend in the internet; the CAPTCHA fight against spam-bots. And spammers have responded by creating CAPTCHA solvers, and companies have sprung up offering CAPTCHA solving services. Te use of algorithmic trading systems is inevitable and unavoidable. It is also impossible to create a fair comparison in the argument because we cannot ‘stop’ using electronic trading to test how the markets would have reacted without the use of algorithmic systems. Te internet and computers are the electronic ‘information superhighway’ that the economy operates on, it would be highly inappropriate and inefficient to have a non-electronic trading system.
Volatility and IT systems
Something EES noticed that was unique about this market spike, prices were being updated faster in absolute terms (not because of the volatility). For example, imagine in 1 minute EUR/USD price goes down by 10 pips, and the price is updated 10 times. Compare this to the same move in 1 minute (10 pips) but the price is updated 100 times. Most FX brokers do not display the
What is High Frequency Trading?
High Frequency Trading (HFT) uses super-fast computers and complex code to detect large orders (increasingly split into smaller lots) coming onto the market, to make canny in-and- out trades ahead of these orders, and to arbitrage small, fleeting price discrepancies across different trading venues for the same securities. High Frequency can be characterized as [1] a large amount of orders generated by a computer system, for example placing 10,000 orders in a single day on a single stock or commodity in 1 account, [2] orders placed in very short time frames, trades which last less than a second (see Flash Trading). HFT accounts for over half the trading volume in the U.S.
Opponents claim that practitioners of high frequency trading gain an advantage at the expense of individual
investors. Proponents
Page 1 |
Page 2 |
Page 3 |
Page 4 |
Page 5 |
Page 6 |
Page 7 |
Page 8 |
Page 9 |
Page 10 |
Page 11 |
Page 12 |
Page 13 |
Page 14 |
Page 15 |
Page 16 |
Page 17 |
Page 18 |
Page 19 |
Page 20 |
Page 21 |
Page 22 |
Page 23 |
Page 24 |
Page 25 |
Page 26 |
Page 27 |
Page 28 |
Page 29 |
Page 30 |
Page 31 |
Page 32 |
Page 33 |
Page 34 |
Page 35 |
Page 36 |
Page 37 |
Page 38 |
Page 39 |
Page 40 |
Page 41 |
Page 42 |
Page 43 |
Page 44 |
Page 45 |
Page 46 |
Page 47 |
Page 48 |
Page 49 |
Page 50 |
Page 51 |
Page 52 |
Page 53 |
Page 54 |
Page 55 |
Page 56 |
Page 57 |
Page 58 |
Page 59 |
Page 60 |
Page 61 |
Page 62 |
Page 63 |
Page 64 |
Page 65 |
Page 66 |
Page 67