Although proprietary network specifics vary widely and change frequently among HFT firms, three common characteristics have emerged as industry constants. The following core requirements are mandatory fundamentals of any successful HFT platform operations.
- Algorithms
Sophisticated mathematical models decide when and where trades are executed.
- Speed
Computing capability of incomprehensible speed is required to fuel underlying algorithmic formulas and mathematical models.
- Infrastructure
Infrastructural capacity sufficient to transmit and receive trade orders within microseconds.
Such impressive capabilities are quite costly. For the most part, h**igh frequency trading firms invest their own funds rather than that of investor customers. Consequently, the HFT arena is open only to heavyweight players with sufficiently massive resource backing.
A duo of basic designations
There are two main categories of hi**gh frequency trading firms: liquidity providers, also known as market makers; and, traders of extremely short-term positions. The latter category is mainly comprised of buy-side traders seeking arbitrate or alpha capture. HFT firms in the former category typically generate staggering profits from per-trade stock exchange incentives.
A trio of HFT player profiles
The three industries most active in HFT are banks, hedge funds, and prop HFT firms. Former Wall Street trader Mike O’Hara has a quarter-century of experience in the sales and support of high-tech financial solutions. He currently owns and operates The High Frequenc**y Trading Review, an online site dedicated exclusively to HFT and algorithmic trading issues.
A February 9, 2011 blog post by O’Hara contained a hyperlinked list of the major players within all three of the major HFT genres:
Banks
Goldman Sachs
Morgan Stanley (PDT or ETL)
Barclays
Deutsche
JP Morgan
Hedge Funds
Athena Capital Research
D.E. Shaw
Two Sigma
Millennium / World Quant
Renaissance
HBK
Citadel
IV Capital
Tower Research
Knight
Blue Crest (minimum PhD for front office)
Winton Capital (UK based)
GSA Capital
Purportedly, prop HFT firms generally function under a cloak of relative secrecy. Thus, this portion of the list was touted as “really useful”:
Prop
Hudson River Trading (only C++)
Wolverine Trading
Optiver
CTC (Chicago Trading Company)
Fox River Partners (No website)
Jump Trading
Spot Trading
GETCO
Sun Trading
Matlock Capital (Tiny)
Ronin Capital
Allston Trading
Chopper Trading
Tradelink
DRW
Traditum
Infinium
Transmarket
Millennium
Spot
IMC
Geneva Trading
Quantres
Tradebot
Tradeworx
Virtu
Headlands
Teza
Etc.
Reasonable minds may always differ as to the relative quality of specific high frequency trading firms. The virtually unanimous consensus holds, however, that regardless of particular culture or internal platform specifics, HFT is here to stay.
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