Tag Archive | high

Programming and stock exchange – HFT

At first I want to do a small introduction on how markets work: once upon a time, operators could make some money through the inefficency of the market just with a telephone, by buying from a market and selling a few minutes later in another market to an higher price and gain from the price difference, this was possible because stock exchanges were not integrated as today with a computerized system, and before differences in prices could adjust from a place to another it would have taken a few minutes.

Nowadays this is not as much possible to take advantage of this inefficency, because prices are the same all over the world, and for example,  if you are looking for a stock price on a screen, it would be the same whether you were in Hong Kong or in New York.

This is possible because of information technology that, as everyone know, is becoming always more important by making the world to become smaller and smaller. Connecting one place to another in just a fraction of a second.

This is the point. Fraction of a second

The prices, as I said, adjust quite instantly all over the world, so that a human could not notice or profit by this small amount of time. Thing is, it is too fast! even if you tap continuously on a button.. and you couldn’t even determine if the price in that blink has raised or decreased.

Here it comes algorithmic trading or robo-trading, and in particular a special class of algorithmic trading which is called “high-frequency trading” (HFT), “in which computers make elaborate decisions to initiate orders based on information that is received electronically, before human traders are capable of processing the information they observe“. Wiki

We are talking of very small amount of time, nanoseconds, that just a machine could use. And if a developer could create an algorithm that is both efficient and fast enough to beat the competition it could become very rich.

Literally, this is a “millions dollars affair”, indeed some societies such as banks, hedge funds and main investors, are already developing their own systems to make million dollars profits a year. A great opportunity of job and profit for both investors and developers, in a branch that will be on the daily agenda of the next (not so far) future.

Algorithm will be the new trading operators.

Advertisements