Question

give a summary of Alogrithmic Trading: High Frequency Trading Systems Documentary

Answer 1

High frequency trading(HFT) is an algorithm based trading which helps in transacting large number of orders at a very high speed.The transaction speed is in milliseconds. Higher speed results in more profits compared to conventional trading. According to Bloomberg reports HFT constituted about 60% of the overall trading in US. However since 2013 it has declined to 50%. Large transactions of pension funds and insurance companies can severely affect the market , hence HFT breaks down these transactions into smaller oder size and thereby limiting the price impact. These algorithms are programmed in such a way that they can transact based on fluctuations in price level, trends, news , speculations, arbitrage opportunities ,etc. HFT helps in trading in equities, derivatives, ETFs (Exchange traded funds tracks index, commodity , bonds etc),currencies and fixed income securities.

Pros of high frequency trading.
It transacts on the principle of buy low and and sell high , Hence, it has reduced the bid ask price spread and has helped in making the market very efficient . It has replaced the middleman for buyers and sellers. It helps in improving the liquidity in the market. Another benefit of HFT is price discovery.

Concerns: Since HFT are algorithm based the algorithm is as good as the programmer and any errors or glitches can have massive impacts on pension funds and insurance funds. Lot of public wealth can be eroded in a single transaction. It has also taken away human involvement, intuition and decision making. In his type of trading larger technology based companies benefit at the expense of retail and small investors.

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