High Frequency Trading: the Fast and the Furious

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Part one of GreySpark’s research on high-frequency trading (HFT) — High Frequency Trading: The Fast and the Furious — explores how, despite regulatory efforts to curb the trend, HFT and low latency trading are continuing to grow in popularity.

The financial incentives and drives for efficiency in markets supports the use of HFT enabled by developments in low-latency technology. Meanwhile, new financial markets regulations could assist in making the trading environment safer rather than hinder the natural development of trading practices, which is a topic addressed in this report.

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Since the late 1980s, a progression in computer processing capability created a broader sphere of capital markets trading methods that allows for an increase in process efficiencies and the expansion of trade execution methods.

Increased regulatory pressures in this area must now contend with the emergence of algorithmic trading and HFT.

Algorithmic trading and HFT are expected to grow over the coming years as more traders seek to exploit the advantages of: cost efficiency; execution consistency; reduced market impact; and speed. A reliance on decisions generated by algorithms is the primary source of these benefits.

This report explores:

  • The realities of HFT;
  • What credible research has shown so far in terms of how HFT can affect market volatility, liquidity and price discovery;
  • What actions regulators want to take to weed out from the perceived undesirable side effects of HFT;
  • And what actions regulators are taking and how these efforts will help or hinder HFT practices.

Published on: 15 Mar, 2013

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High Frequency Trading: the Fast and the Furious – Table of Content

  • 1.0 The Electronic Trading Environment
    • 1.1. Distinguishing Between HFT and Algorithmic Trading
    • 1.2. Defining HFT
    • 1.3. The Myth of HFT
  • 2.0 A Brief History of HFT
  • 3.0 HFT in Practice
    • 3.1. HFT Strategies
    • 3.2. HFT across Asset Classes
    • 3.3. HFT across Geographies
  • 4.0 Regulatory Summary
    • 4.1. Further Regulatory Developments
  • 5.0 HFT and Low Latency Trading Systems Are Here to Stay