The High Frequency Game Changer How Automated Trading Strategies Have Revolutionized the Markets

by Zubulake, Paul; Lee, Sang

• ISBN13: 9780470770382
• ISBN10: 0470770384
• Edition: 1st
• Format: Hardcover
• Copyright: 2011-04-05
• Publisher: Wiley

Summary

The financial industry's leading independent research firm's forward-looking assessment into high frequency tradingOnce regarded as a United States-focused trend, today, high frequency trading is gaining momentum around the world. Yet, while high frequency trading continues to be one of the hottest trends in the markets, due to the highly proprietary nature of the computer transactions, financial firms and institutions have made very little available in terms of information or "how-to" techniques. That's all changed with The High Frequency Game Changer: How Automated Trading Strategies Have Revolutionized the Markets. In the book, Zubulake and Lee present an overview of how high frequency trading is changing the face of the market. The book Explains how we got here and what it means to traders and investors Details how to build a high frequency trading firm, including the relevant tools, strategies, and trading talent Defines key components common to HFT such as algorithms, low latency trading infrastructure, collocation etc.The High Frequency Game Changer takes a highly controversial and extremely complicated subject and makes it accessible to anyone with an interest or stake in financial markets.

Author Biography

PAUL ZUBULAKE is a senior analyst at Aite Group, LLC, specializing in financial, energy and commodities futures, and options markets. His expertise includes how the application of technology, such as algorithmic trading and FIX protocol, is playing an ever-increasing role in futures and options trading.

SANG LEE is a cofounder of Aite Group, LLC and currently serves as the managing partner. Mr. Lee's expertise lies in the securities and investments vertical and has advised many global financial institutions, software/hardware vendors, and professional services firms in sell-side and buy-side electronic trading technology and market structure.

Lee and Zubulake have both been quoted extensively in the media, including in the Wall Street Journal, New York Times, the Washington Post, Financial Times, Business Week, Reuters, the Chicago Tribune, and other publications.

Table of Contents

Introduction	p. xi
Acknowledgments	p. xiii
Birth of High Frequency Trading: Equity Markets Go Electronic	p. 1
Defining High Frequency Trading	p. 2
Who are the High Frequency Traders?	p. 6
Impact of High Frequency Trading	p. 9
Building a High Frequency Trading Team	p. 13
Market Structure	p. 15
Order Handling Rules of 1997	p. 16
Growth of Electronic Communication Networks	p. 17
Regulation National Market System	p. 22
Market Fragmentation versus Competition	p. 28
Dark Pools	p. 32
Trading Infrastructure	p. 47
Rise of High Performance Technology Vendors	p. 49
Key Components of High Performance Infrastructure	p. 52
Feed Handlers	p. 52
Ticker Plant	p. 54
Messaging Middleware	p. 55
Storage	p. 58
Networking	p. 59
Colocation	p. 60
Sponsored Access	p. 61
Liquidity	p. 71
HFT as Liquidity Providers	p. 71
Flash Crash	p. 72
Trading Strategies	p. 75
Examples of Algorithms	p. 77
Order Types	p. 78
Flash Orders	p. 79
High Frequency Trading and Predatory Strategies	p. 79
Expansion in High Frequency Trading	p. 81
Futures	p. 81
Fixed Income	p. 84
Foreign Exchange Market	p. 85
Equity Options	p. 92
Over the Counter Derivatives	p. 94
Expansion into Global Markets	p. 94
Positives and Possibilities	p. 105
Commoditizing High Frequency Trading	p. 106
Trading Technology Demands and Preferences	p. 108
Internal Focus	p. 109
Choosing Vendors	p. 110
Finding the Next Opportunity	p. 111
Issues and Risks	p. 114
Order Routing Gets Smart	p. 115
Smart Order Routing's Future	p. 118
Is Artificial Intelligence Next?	p. 121
Economic Indicators	p. 121
News	p. 122
Securities and Exchange Commission Filings	p. 123
The Pseudo-Semantic Web	p. 125
Going Global	p. 128
The Next Wave	p. 129
Credit Crisis of 2008: The Blame Game	p. 131
U.S. Federal Reserve	p. 131
Regulatory Agencies	p. 132
Credit Agencies	p. 132
Politicians	p. 132
End-Users of Derivative Products	p. 133
Recent Regulatory History	p. 134
Financial Modernization Act of 1999	p. 134
Commodity Futures Modernization Act of 2000	p. 134
Dodd Frank Wall Street Reform Act of 2010	p. 135
Ending Too Big to Fail Bailouts	p. 136
Creating Transparency and Accountability for Derivatives	p. 137
Hedge Funds	p. 137
Credit Rating Agencies	p. 138
Executive Compensation and Corporate Governance	p. 138
Impact of Potential Regulations and Rule Changes-Securities and Exchange Commission Concept Release	p. 139
Conclusion	p. 141
Glossary	p. 143
About the Authors	p. 149
Index	p. 151
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