High frequency trading systems must be virtually invulnerable. Error-free continuous operation is an essential requirement. A single line of bad computer code can bring an HFT firm to its knees with staggering financial losses. Thus, high frequency exchange desks must be scrupulous about the proper implementation of automated trading networks and their initial market interface. Four basic steps are necessary to ensure optimal HFT functioning and efficiency.
Planning and Evaluation
Adequate thorough planning is indispensable to the long-term success of all HFT systems. Several factors must be properly accounted for and integrated. These include budgetary constraints, time deadlines, business objectives, network capability, and various operational and technological matters. Often, miniature models are tested to evaluate final project feasibility. During the evaluative stage, all organizational participants should be consulted for input. This includes technical management, business management, and other departmental supervisory staff.
System Structure and Incorporation
Upon completion of initial planning and evaluation, system specifications may be plotted as an overall system structural detail. Exceptional software design is mandatory during this entire stage of HFT system development. Each system unit must have a clearly defined distinctive role, yet work seamlessly with other network components.
Typically, dedicated developer teams work separately on discrete systemic aspects. Upon full development and testing of each individual HFT system module, their integration and testing as a whole must then be completed. SCRUM formats are regarded as best for this developmental stage.
Implementation and introduction
The implementation developmental phase entails rolling out and testing high frequency trading systems under actual market conditions. Most commonly, a User Acceptance Test (“UAT”) environment features realistic marketplace and stress conditions. Latency and throughput figures are closely scrutinized to ensure trade execution capability within regulatory mandated time-frames.
To ensure the lowest possible latency, HFT systems are usually housed near securities exchange physical facilities. Known as “co-location,” this practice increases latency by reducing travel distances of trade order messages.
Observation and Maintenance
Once all testing is complete, statistical performance compilations have been validated, and the automated trading system has demonstrated acceptable performance, it is ready to go live.
Close observation and vigilant maintenance are imperative for any high frequency trading system after live implementation. Quite frequently, fine-tuning is required to maintain optimal system performance. A comprehensive suite of tools should be incorporated during initial system design to allow this.
High frequency trading systems can be extremely efficient profit-generating machines. Meticulous care must be taken at every developmental phase, however. From initial planning to final implementation, HFT systems deliver results that are directly proportional to developmental efforts.
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