Date post: | 14-Apr-2017 |
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High Frequency TradingBy: Doug Porter
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What Is It?HFT at workHFT involves the use of sophisticated technology and computer
algorithms to trade large amounts of securities at an extremely fast pace.
These algorithms (algos) execute millions of orders per second while simultaneously analyzing markets for useful information and recognize market conditions.
Orders broken downProfit by volume
Utilized by many types of firms & investors2
Why It Exists?●Humans are slow.●Reduced the duration of arbitrage opportunities from 97
milliseconds in 2005 to 7 milliseconds by 2011.●In 1960, an average share would be held for 4 years. In 2000, the
holding time fell to 8 months and to 2 months by 2008.●HFT constitutes around 70% of trading on the stock market.
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Does High Frequency Trading Affect Individual Investors?
Yes
Investors pay a higher price for security.
2010 Flash CrashPeople lost faith in the
financial system after the 2008 crisis.
Unfair to small investor
No
A regular investor usually don't day trade their stock portfolio.
Investing where the professionals aren't looking
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Pros and Cons of High Frequency Trading
Pros
Huge volume increases liquidity
Increases market efficiency
Reduces costs of trades
Cons
● Only a small circle of “traders” truly benefit
● Difficult to regulate
● Can lead to market manipulation (fraud)
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Compliance and Regulation for High Frequency Trading
Is it fair for other traders?
2010 Flash crash.
Trading companies as “proprietary traders”
Avoid oversight
SEC failing to keep up with regulations of new technology.
What’s next?6
What Do You Think?- Do you think HFT is good or bad?
- Do you think it’s fair for investors?
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Questions?
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