HFT In a Nutshell
Within the time-frame that it takes to read this sentence, an ultra-low-latency trading algorithm can place millions of orders. If the reader is slow to process information and savors details, a few million additional orders can be placed. Just “1” error in the algorithm may cause a great turmoil in the market, and millions of dollars can be lost in a minute. Potential losses dictate that a better automatic trading interaction with markets is crucial, which was clearly proved by the Knight Capital fiasco in 2012.
HFT Behind the Scene
Visualization for analyzing financial data structure plays a vital role in programmatic trading where you need a good mix of traders and engineers to bring the power of alpha and enable it. Here is the challenge is not only to build an algorithmic strategy, but to also predict the emotional state of traders influencing market flow. It is almost always uncertain whether future market volatility adequately reflects the historical data, which contrasts with the belief of using a purely rational approach. Top of that there are many factors involved in the design of an efficient algorithm, one essential factor being that the developer must consider a trading engine behavior on the other end.
HFT is Mature Now
Today’s HFT looks more mature.
As Craig Pirrong stated:
HFT has followed the trajectory of any technological innovation in a highly competitive environment.
At its inception, it was a dramatically innovative way of performing longstanding functions undertaken by intermediaries in financial markets: market making and arbitrage.
It did so much more efficiently than incumbents did, and so rapidly it displaced the old-style intermediaries.
During this transitional period, the first-movers earned supernormal profits because of cost and speed advantages over the old school intermediaries.
HFT market share expanded dramatically, and the profits attracted expansion in the capital and capacity of the first-movers, and the entry of new firms.
And as day follows night, this entry of new HFT capacity and the intensification of competition dissipated these profits. This is basic economics in action.
Under the light of these recent developments, it is not surprising that many of the HFT firms closing their doors one by one as the market became more mature and more players trying “the same speed game”. There is a monopoly now and the cost of entering the market is too costly comparing the profits.
As a conclusion only a handful of HFT firms left out there to share the small leftover cake, due to low volatility and increasing infrastructure costs. Here is the some top players: https://www.planetcompliance.com/2017/03/26/introduction-hft-industry-top-20-hft-firms-world/
Long Live HFT!