By Michael Durbin

A distinct PRIMER ON state-of-the-art such a lot refined AND arguable buying and selling TECHNIQUE

Unfair . . . impressive . . . unlawful . . . inevitable. High-frequency buying and selling has been defined in lots of other ways, yet something is for sure--it has remodeled making an investment as we all know it.

All approximately High-Frequency Trading examines the perform of deploying complex laptop algorithms to learn and interpret marketplace job, make trades, and pull in large profi ts―all inside milliseconds. no matter what your point of making an investment services, you are going to achieve necessary perception from All approximately High-Frequency Trading's sober, target reasons of:

  • The markets within which high-frequency investors function
  • How high-frequency investors profi t from mispriced securities
  • Statistical and algorithmic thoughts utilized by high-frequency investors
  • Technology and methods for development a high-frequency buying and selling process
  • The ongoing debate over the benefi ts, dangers, and ever-evolving way forward for high-frequency trading

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Additional resources for All About High-Frequency Trading (All About Series)

Sample text

2 BBO = best bid and offer, as explained previously. Trading Strategies 47 As with the investor, the market-maker has a relatively small number of primary motivators driving his strategies. Paramount among these is risk management. Recall that our market-maker has no inherent interest in holding securities for any longer than he has to. In his perfect world, he would buy at the bid from one party (such as an investor, but, of course, he doesn’t care who it is), then immediately sell to another at the offer to get out of his position.

An investor who uses software to automatically work orders is sometimes known as an algorithmic trader. It’s an imperfect term, not Trading Strategies 49 to be taken literally, because algorithm is just a jazzy term for a well-defined set of instructions for completing some task. The routine for starting your car is an algorithm. So is my special recipe for margaritas. And so are the things market-makers do—but they aren’t considered algorithmic traders. Go figure. So because investors using automated trading techniques are known as algorithmic traders, the strategies here are also known as algorithmic strategies.

By convention, traders acting as or on behalf of investors tend to be known as buy-side traders. The label doesn’t work literally, as investors are nearly as likely to sell as they are to buy, but the term persists nonetheless. The term sell-side trader usual refers to a trader like our market-maker, whom we’ll talk about next, even though they, too, are as likely to buy as to sell. The Market-Maker In an ideal market, investors could always trade with other investors. Someone wishing to buy some quantity of stock for their portfolio would always find someone wishing to remove the same quantity from theirs, and vice versa.

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