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High Frequency Trading!

Quoting triphop
I always assumed that HFT was beyond the realms of the typical retail trader. Because of latency and execution being so important, you need a technical edge as well as a strategic one, and to maintain that edge I'm guessing would require some serious and continual investment.
HFT basically requires 3 things:

1) An edge (like in any other type of trading).

2) Low latency direct market access.

3) A very well developed infrastructure.

Especially 3) is beyond reach for the typical retail trader IMO (including the well-capitalised).
Also, check out this article:
Attached File(s)
File Type: pdf eforex-072007.pdf   159 KB | 1,812 downloads
Quoting dominicanosrus
It doesn't matter. Just because they show a bank on the list, it doesn't mean that everyone that trades with that bank in one capacity or another has access to the same prices. Banks do whatever the hell they want. That's why it's so important to collect the data yourself from the aggregated pool you'll be using to trade. Hedge funds, prop shops, and professional traders successfully running high frequency models aggregate their own bank lines or portals directly and they collect tick data that's relevant to their systems. They don't use eSignal...
the main problem with using the data collected from some of these ecn's and even aggregators like cax,flextrade etc is that most of the time the liquidity providers still have a last look option. That and the fact that each bank and ecn have diff order matching algos so depending on the strategy, algos might be severly affected.
Good find BlackMage - I came across Olsen a while back in another interview about order flow; he's a clever man and no mistake.

Here's another interesting one (equities not FX but easy enough to extrapolate):
http://blog.themistrading.com/?p=158
These discussions are interesting, however it seems to me that most traders who use retail brokers (especially who use MT4 brokers) will find it difficult to make such high frequency trades. I am focusing more on analyzing tick data but using it for longer term swing trades. It seems that the unique features of tick data coupled with the fact that it is complete data (no price fluctuations are ignored as is the case with timeframe data) should allow for more accurate and timely entry and exit points, if one can analyze it effectively.
Quoting sccz97
the main problem with using the data collected from some of these ecn's and even aggregators like cax,flextrade etc is that most of the time the liquidity providers still have a last look option. That and the fact that each bank and ecn have diff order matching algos so depending on the strategy, algos might be severly affected.
This is a major issue and probably one of the reasons why high frequency trading is not as well developed in spot forex as it is in e.g. equities. The only thing you can do is to make sure your simulation environment imitates these behaviours as approximately as possible (which is one of the most difficult things to get right in HFT) .

However this is mostly an issue if you take liquidity (except for the competitive disadvantage you find your self in when supplying liquidity).
Quoting BlackMage
However this is mostly an issue if you take liquidity (except for the competitive disadvantage you find your self in when supplying liquidity).
The a significant amount of HFT amongst the banks in the equity space is traditionally market making so I wouldn't be so convinced they're at that much of a disadvantage. It's sad to see how much HFT have taken over trading equities in this low liquidity environment, and it's completely destroyed futures.
Quoting sccz97
The a significant amount of HFT amongst the banks in the equity space is traditionally market making so I wouldn't be so convinced they're at that much of a disadvantage. It's sad to see how much HFT have taken over trading equities in this low liquidity environment, and it's completely destroyed futures.
I was unclear in my comment above. What I meant was that if your model is to supply liquidity in an ECN setup where the banks as main suppliers of liquidity has special privileges like last look possibility, then you are at a competitive disadvantage.
Quoting BlackMage
I was unclear in my comment above. What I meant was that if your model is to supply liquidity in an ECN setup where the banks as main suppliers of liquidity has special privileges like last look possibility, then you are at a competitive disadvantage.
i agree with you completely, but i doubt anyone here would be trying their hand at market making, especially in this mkt when unscheduled comments can cause huge intraday moves.
Ever since i have posted the link to the webinar for algorithmic trading with Matlab, it had some advanced files, and for the longest time i was trying to find them. Well the time has come, and i have found all of the files featured in that webinar, posted in the beginning of the thread. The files are attached, enjoy if you know Matlab. These files are gold.
cOd3, I wouldn't mind getting my hands on these files. However, I don't see them attached anywhere.
dominicanosrus, I see you are still around. How's your HF traders doing in the current environment?

By the way, should anyone read trough this thread (which is worth a read) I can tell you that dominicanosrus knows exactly what he talks about...
Right. A good place to start to read all about the fascinating world of HFT is on the Olsen and Associates website. Read some of the papers by Richard Olsen and his various associates. Its a real hoot to try to wrap your brain around R.O.'s application of "intrinsic time" etc to forex trading. You like fractals? They got Mandelbrot on board. Not into advanced statistics and other beyond-high school math topics like time series analysis? Well, in that case you're SOL.

http://www.olsen.ch/publications/published_papers/
"If The Fool persists in his Folly he will become wise." - William Blake
Here is another good reference:

http://quantivity.wordpress.com/2010...rading-part-2/
http://quantivity.wordpress.com/2010...rading-part-3/
Quoting BlackMage
dominicanosrus, I see you are still around. How's your HF traders doing in the current environment?

By the way, should anyone read trough this thread (which is worth a read) I can tell you that dominicanosrus knows exactly what he talks about...
Thank you for your comments Blackmage. Have we spoken in the past?

Regarding the HF traders, none of those projects have ever worked, although we're working on one now that, so far, has demonstrated a lot of promise.

Now we mainly work with institutional-type traders (mostly FX, but some futures as well) that have different styles, but are not HF. Anthing from swings that take a few days before they're closed out to intraday trading - but nothing trading with real money that's HF.
Quoting dominicanosrus
Thank you for your comments Blackmage. Have we spoken in the past?

Regarding the HF traders, none of those projects have ever worked, although we're working on one now that, so far, has demonstrated a lot of promise.

Now we mainly work with institutional-type traders (mostly FX, but some futures as well) that have different styles, but are not HF. Anthing from swings that take a few days before they're closed out to intraday trading - but nothing trading with real money that's HF.
Aren't like 70% of the world's transactions on financial markets done by the trading algorithms of HF traders? I do have the feeling most firms use high frequency trading mostly for proprietary purposes though.

http://www.nytimes.com/2009/09/04/bu...pagewanted=all

This is a nice article I read a while ago.
The nail that sticks out gets hammered back in
If I frequently trade while I'm high, does that qualify as high frequency trading?
"If The Fool persists in his Folly he will become wise." - William Blake
Quoting dominicanosrus
Thank you for your comments Blackmage. Have we spoken in the past?
No - you seem genuine enough:-)

Quoting dominicanosrus
Regarding the HF traders, none of those projects have ever worked, although we're working on one now that, so far, has demonstrated a lot of promise.
People generally have slightly different things in their mind when they talk about HF trading. Are we talking liquidity providing/market making strategies or short term liquidity taking strategies (or maybe a mix)?

But in general it's not exactly easy...and it's a real b***h to simulate properly.

Also, it seems that spot FX HF trading is on the rise, although this is not necessarily a bad thing - especially if your on the buy side. It would probably only be healthy if the banks faced more fierce competition.
Quoting The Fool
If I frequently trade while I'm high, does that qualify as high frequency trading?
Yes, that could qualify - depending on the frequency. Though it works best if your on MethyleneDioxyMethAmphetamine and have DirectMarketAccess at the same time...
Quoting BlackMage
People generally have slightly different things in their mind when they talk about HF trading. Are we talking liquidity providing/market making strategies or short term liquidity taking strategies (or maybe a mix)?
You are correct regarding the market making vs liquidity taking. I have never worked on any HF market making strategies; only on liquidity taking strategies. It sure it's an exciting and sexy form of trading, but truly &!%$#%$! difficult to make it work, as you said.
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