Today a big Wall Street trader is more
likely to have a Ph.D. from Caltech
or MIT than an MBA from Harvard or
Yale. The reality is that automated trading is the new marketplace, accounting
for an estimated 77% of the volume of
transactions in the U.K. market and
73% in the U.S. market.a As a community, it is starting to push the limits of
physics. Today it is possible to buy a
custom ASIC to parse market data and
send executions—in 740 nanoseconds
(or 0.00074 milliseconds.
4 Indeed, human reaction time to a visual stimulus
is around 190 million nanoseconds.)
a http://bit.ly/13WpmE2
In the first of the other two articles
in this special section on HFT, Sasha
Stoikov and Rolf Waeber explain the
role of one-pass algorithms in finance.
These algorithms are used throughout
the industry as they provide a simple
and very fast way of calculating useful
statistics (such as correlation between
two streams). One-pass algorithms are
also easier to implement in hardware
(using Verilog or VHDL) because they
require only a few bits of memory, compared with a vector of historical events.
In the other article, Stephen Strow-
es discusses a method for estimating
round-trip time (RTT) latency from
packet headers. Estimating RTT is a
key component for both HFT firms
and exchanges, and the method pre-
sented here solves an interesting prob-
lem when you cannot install a tap on
every interface or on the other side of
the wire.
my time in hft
When I began in HFT, it was a very different world. In 2003, HFT was still
in its infancy outside of U.S. equities,
which had two years earlier been regulated into decimalization, requiring
stock exchanges to quote stock prices in decimals instead of fractions.
This decimalization of the exchanges
changed the minimum stock tick size