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