Frequency Trading Terminology

MUMBAI (Reuters) - The disclosure by the National Inventory Exchange that some High-frequency Trading brokers may have been offered unfair access to its servers is unlikely to derail the Indian bourse operator's IPO plans, a senior regulatory source and traders said on Thursday. The rise of those companies, typically often known as High-frequency traders (HFT) as a result of they execute lots of of thousands of orders a second, has long-stirred intense controversy within the U.S. and Europe the place critics claim they've an unfair benefit over retail and conventional institutional investors. Advocates of High-frequency Trading say these companies provide an important source of liquidity to the markets and help to scale back pricing volatility.
Since decrease latency equals quicker pace, High-frequency merchants spend closely to obtain the quickest pc hardware, software and knowledge lines in order execute orders as speedily as attainable and achieve a aggressive edge in Trading. Since light in a vacuum travels at 186,000 miles per second or 186 miles prt millisecond, a HFT firm with its servers co-positioned proper inside an change would have a much decrease latency - and therefore a Trading edge - than a rival firm situated miles away.



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Exchanges will benefit from the volumes HFT can usher in. No marvel, NSE and BSE have been actively advertising their co-location infrastructure. That is paying homage to an ‘illegal' HFT technique resembling layering, which creates an illusion of a big investment happening in a inventory to generate a price motion favourable to the dealer. Along with the present caps on OTRs, a cap or fees on extreme use of HFT strategies must be thought of. India has been a land of opportunity for HFT gamers as High transaction costs in some European markets and greater competitors in the United States have encouraged international HFT corporations to flock to India in recent times.
Moreover, earlier than algorithmic systems are deployed, companies should set limits on the number of devices traded, the price, value and numbers of orders, the strategy positions, and the number of Trading venues to which orders are sent, to ensure they keep control over the method. Following the introduction of the Market Abuse Regulation (MAR”) earlier this year, algorithmic firms should have in place automated surveillance techniques, proportionate to the dimensions, scope, nature and complexity of their operation. MiFID II builds on MAR's requirements specifically within the context of firms with algorithmic methods.
Moreover, if a agency decides to outsource software or hardware used in its algorithmic Trading activities, it should still have to retain ample knowledge of the outsourced techniques and maintain appropriate documentation relating to the outsourced software program or hardware for the needs of regulatory responsibility within the event that the regulator has questions surrounding the outsourced capabilities.

A SIP's latency in calculating the NBBO is generally greater than that of HFT companies (because of the latter's sooner computers and co-location), and it is this distinction in latency - estimated by Lewis to sometimes reach as much as 25 milliseconds - that is on the core of predatory HFT exercise. Nasdaq OMX Group and NYSE Euronext each run a SIP on behalf of the eleven exchanges in the U.S. Good routers could be programmed to ship out pieces of enormous orders (after they are broken up by a Trading algorithm) in order to get value-efficient commerce execution.
One treatment is to move to discrete-time Trading, the place the Trading day is divided into frequent but discrete time intervals of minuscule length. Exchanges love HFT as it may well increase trade volumes and its advocates reiterate the advantages HFT can have in bettering liquidity. The target was to test repeated management of orders with out generating Trading volume.

Tick Trading typically aims to acknowledge the beginnings of large orders being positioned in the market. This technique has develop into tougher because the introduction of dedicated trade execution companies within the 2000s which provide optimum Trading for pension and other funds, particularly designed to take away the arbitrage opportunity. Algorithm Trading constitutes over 50% of total Trading within the cash and derivatives markets in India.
Algorithmic Trading corporations are defined underneath MiFID II as those that use a computer algorithm which robotically determines particular person parameters of orders comparable to whether to provoke the order, the timing, value or quantity of the order, with restricted or no human intervention. Having decided who's caught inside the MiFID II definitions, we now have a look at what meaning for firms with algorithmic and HFT strategies and the necessities which were set out by the European Securities and Markets Authority (ESMA”) in its Regulatory Technical Standards (RTS”).
Flash Trading is controversial because HFT companies can use this information edge to trade forward of pending orders, which may be construed as front running. U.S. Senator Charles Schumer had urged the Securities and Exchange Fee in July 2009 to ban flash Trading, saying that it created a two-tiered system the place a privileged group received preferential therapy, whereas retail and institutional investors were put at an unfair drawback and disadvantaged of a fair worth for their transactions.
The overriding theme in HFT is speed within the areas of order entry, order execution and reception of change or market-primarily based knowledge. They're crucial elements of HFT methods and direct determinants of the power to ascertain High Frequency Trading Software long-time period profitability from operations. To realize a aggressive advantage over other market participants within the area of velocity, HFT firms pursue ultra-low latency” technologies.