High Frequency Trading And Quantitative Development

With the advancement of technology, the market has also transformed its look and has now shifted its dependency from humans to computer programs

. High frequency trading is an example of the new face of trading system that enters trade using some programs. This changing trend has changed the overall look of the market and has added quality to it. Some advantages of high frequency trading are that now trading costs are lower, discrepancies in price are greatly lowered and liquidity of market has greatly increased while increasing its deepness. Furthermore, with the advancement of this technique, the value of commodities and stocks are better reflected by the market price. It will be better to say that high frequency trading can reach the place where humans cant.

High frequency trading enables to create a trading platform that makes use of complex mathematical based algorithms to study multiple markets and execute orders based on market conditions. It is impossible for a human being to keep a close vigil on the entire market and its changing trend with efficiency. So, allowing traders to overcome this shortcoming, this technique is used to transact a large number of orders at very fast speed. As a consequence, the high frequency traders compete with other traders on the basis of speed and are not in race with long term investors. This technique has gained popularity based on the fact that the traders with fastest execution will be more profitable than the slower execution.

High frequency trading is quantitative trading that has short portfolio holding periods. The quantitative trading investment technique is employed by the some sophisticated and technically advanced traders. The quantitative development can be achieved by the people who have expertise in maths, computer science, statistics and physics. The algo used for the quantitative trading searches some repeated patterns from a vast database for trading. However, data accuracy is the most vital factor for determining outcomes in quantitative development.

The amazing ability of simultaneously processing volumes of information has made the high frequency trading highly famous that is almost impossible for humans to achieve. With the increasing use of high frequency trading, market has experienced enormous growth. Initially, traders had experienced some fall in the total growth but the fall was soon replaced by the huge growth that changed the scenario and traders started using HFT on larger basis. First made successful by the Renaissance Technologies, majority of the high frequency trading firms are market makers and provide superb liquidity to the market that has resulted in the lowering down of volatility. This has made investing and trading cheaper for market participants.

by:Addison Ailee

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