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high frequency inverter dispelling myths of high frequency trading by d. keith ...

by:KEBO      2019-10-16

The purpose of this paper is to eliminate misconceptions about the impact of high frequency traders (HFTs) on market decision making.I will clarify how the marketThe HFT exchange then explores the efficiency created by high frequency traders (HFT) for the market.I will show how HFTs can benefit a tighter, more efficient market for all market participants by using high-speed computers.The problem of rebate trading and cooperationThe location will also be explored.

When we think of the word "high frequency trading", a useful image is the image of the expert.The expert is a member of the exchange and is responsible for maintaining the quotation and books of the stock.The expert has been a bit mysterious and skeptical for years.This stems from a misconception about the risk of managing Expert books, and jealousy about the monopoly that experts enjoy.HFT plays a similar role in manufacturing markets and managing risks, but it uses computers and operates at high speeds.It's not surprising that HFT is also misunderstood and jealous.
How do experts make a living through marketing?Stocks are trading in the auction market.There is always a bid price, the price of the purchase of the stock that the expert is willing to pay, and the quotation, the price of the stock that the expert is willing to sell.This is a simple example of stock XYZ: The market is $10.Bid $10.05;or 10.00/10.05.Customer A was bullish and decided to buy 100 shares, so he/she sent the order to the market and the specialist sold 100 shares for £ 10.05.Experts reset the market to 10.01/10.06 (because of the interest to buy), later Customer B decided to sell 100 shares at a price of 10.01.Experts buy stocks at 10.01 make a profit at 4 cents or 4 dollars per share.00.Experts are likely to reset the market to 10.00/10.05.The key is that experts maintain livelihoods by buying at the time of bidding and selling at the time of the offer to control the spread between the two prices.
As you might guess, reality is not that simple and much more risky than this example.If customer A wants to buy, then Customer B, C, D may also want to buy at the same time, it is easy to create A case where experts sell A lot of stock before others appear as sellers.So the skill to be an expert is to determine where the balance of supply and demand, the balance of buyers and sellers are in the stock, and then build the market around this level.This level is usually the goal of moving during the day.In addition, experts must manage the risks involved in long or short stock positions.Managing risk means not making the position too big, long or short to prevent adverse price fluctuations (I.e.Long positions with lower prices or short positions with higher prices ).If the risk is managed well and the experts are profitable, then the money earned by capturing the spread between the bid and the inquiry will offset the loss caused by the unfavorable movement of the position.Experts usually have long or short positions overnight, which will pose additional risks.In order to make up for the very real risks involved in the ongoing market, the expert has historically monopolized the stocks he holds.While this increases the chances of expert success, it hinders the development of faster and more efficient markets.
Enter high frequency traders and HFT computers.Computers are programmed to market as described above, and the software also calculates a new market after each transaction and manages the risks of the transaction.The reason why HFT is successful is because their risk management is very good.This is because the software has perfect discipline;It always does what it's programmed to do.There is no emotion at all for profit or loss, it manages long term or short term positions better than one person.In addition, software can assess more factors than humans;It can have multiple inputs beyond what humans can observe, so it can calibrate better markets.In the end, HFT is almost always flat, meaning they have no net market impact.* This creates a more efficient market by tightening the spread between bids and reducing the impact on the single trading market.This benefits all participants in the market.

The exchange and ECNs offer rebates to any market participants who publish the market on the exchange, which is a very good reason.While experts are obliged to open up the market, HFT has no responsibility in this regard.In fact, HFT is wise to hold back and test the water before jumping in to become the first market maker on site.This is because if HFT first releases a market that is too high or too low, there is a risk that HFT will have multiple loss trades because other HFT will respond as quickly as possible, take advantage of their badbad market.HFT may then get the wrong long-term or short-term position on the market.To overcome this disadvantage, the exchange offers rebates to those stocks that are usually 25 cents per 100 shares and charges those stocks whose liquidity is usually 30 cents per hundred shares.Kickbacks encourage HFT to take the risk of posting first and allow them to make money from very narrow markets.
So what happens when HFT makes a tighter, more efficient market and a simple example (from the above example) more efficient and competitive.Not the market.00/10.05 HFT released 10.02/10.03.Customer A bought 100 shares at 10.03 from HFT.HFT reset the quote to 10.03/10.04 and Customer B came in to sell 100 shares and got a price of 10.New price from HFT.Customer A purchased for £ 10, saving 2 cents per share (minus the fee for pick-up ).03 instead of non-HFT price 10.05, Customer B was sold for 10 and also saved 2 cents per share (minus the fee for pick-up ).03 instead of 10.01.HFT has 100 shares (buy and sell 100 shares at the same price), which is something that experts can't make money.But HFT has already received two rebates, one for sale to customer A and the other for purchase from customer B.HFT's total rebate is 50 cents, saving $1 for both customers.70 This sample trade.Rebates are the driving force for HFT to create a more efficient market by making stricter bids/inquiries to 10 customers.027/10.033, this is not profitable in the days of manual trading.HFT makes money by repeating the process thousands of times on trading days and effectively managing the risks of such a narrow market.
Co-
In addition to the risk of reporting the market first, HFT also has the risk that due to the rapid changes in market conditions, the quoted prices issued become stale and traded with non-latest quotations.Main reasons why Hft s needs cooperationPositioning is to compete with each other, not with customers.If you are a slow HFT, other HFT will take advantage of your market.In order to keep the offer as up-to-date as possible, HFT will put their computers in the same facilities as the exchange to reduce the travel time required to refresh the offer on the exchange.Co-Anyone who is willing to take on the costs and management of this opportunity can find a place.When you consider the servers, power, telecom and employees you need to run in this way, it becomes rather expensive.HFTs occasionally trade with each other, but what keeps the market narrow and efficient is the competition between them for customer orders.

High frequency trading is an automated version of the expert model.HFTs breaks the professional monopoly and competes with each other for customer orders, thus bringing remarkable efficiency to the market.HFTs provides customers with stricter, better prices (lower transaction costs) and faster access to the market, shortening filling times.The speed and efficiency of HFTs plus kickbacks enable HFTs to make a living by building a market that is half as effective and open to all buyers and sellers.

In the expert model, a good floor broker will ask the expert questions, what is the market?Then get a photo from an expert with a few scales above or below, or where there is a size that can be traded.The lack of this information in the HFT model makes it more difficult to execute large orders.Traders have resolved their orders to the small-volume market.There is a new ATS, called PDQ, which restores this feature in the high-speed electronics market, causing HFTs to compete for orders.The full discussion of PDQ in the next stage of the development of the electronic market is beyond the scope of this article.Learn More http://www .PDQATS.com.
* HFTs should not be confused with other forms of electronic transactions.Traders can now use computers to automate transactions in a manner similar to those of the past Manual times, such as rebalancing portfolios, trend tracking, investment and speculation.Unlike HFTs, these projects are not involved in creating markets and providing liquidity, and they do have an impact on the market.
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