HIGH-FREQUENCY TRADING
Myth No. 3: HFT firms drive smaller players out of the market
Another assumption is that HFT firms mono p o l ize ex ch a n g es ; through the dollars and t e ch no lo g y they bring, they usurp some of the smaller players, thus driving them out.
The first part does happen: It’s no secret that HFT firms bring a lot of money into an exchange (which is a good thing, as we saw in Myth No. 1). The myth here is
on the CME, until the HFT firms come into the Chicago market and create more competition. Instead of closing up shop, what that smaller firm should do is
FX
providers are making it a snap to connect globally. The firm doesn’t need employees physically in Australia, or deep knowledge of the network routes and hardware providers there, or local broker relationships. S e r v i c e p r o v ide rs bring all of this, taking the tough parts off the firm’s hands and creating access formerly only available to global conglomerates.
It’s no secret that HFT firms bring a lot of money into an exchange
that
smaller players just hang up their hats and go home.
The smart ones, however, know how to survive, by taking the same
strategy they used in
competitive, mature markets and airdropping it into emerging markets.
Say a smaller firm makes a killing trading short-term interest rates
look at other avenues.
The Australian market (ASX) also trades short-term interest rates. This smaller firm can take its same strategy; trade on another, less competitive exchange, like the ASX; and continue to reap the rewards.
And while small firms may bemoan their lack of international resources, in fact, service
E x p l o r ing these new avenues is part of the “adapt and adopt” m en ta l i t y that anyone involved in the
financial service industry needs to have these days.
Myth No. 4: An HFT firm’s business model is solely based on speed
Some believe HFT firms make their money only because of the speed at which they trade – they get from one place to the other faster
than anyone else. While this is the bulk of their business, FX TRADER MAGAZINE April - June 2019 19
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