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Sunday, June 21, 2009

High Frequency Trading driving the need to build quickly, run fast

Posted by Louis Lovas

<p>High Frequency Trading driving the need to build quickly, run fast</p>


In just about any race there is usually a starting point and a finish line, unless of course you are in an arms race.  For that sort of race there may have been some nebulous beginning in the distant past, but there is no finish line. The race just keeps sprinting along, each competitor angling for an edge, regularly recharging their ammunition supply with some new weaponry to get ahead however slight or temporary.

I recently read an interesting article describing High Frequency Trading as embroiled in an arms race. I certainly believe it's well entrenched in such a conflict, but frankly this combat has arguably had a beneficial net effect especially in that it's contributed to the wellspring of invention, inspiring the creative spirit in all the supporting attributes that make High Frequency Trading a reality. Behind any trader (and trading firm) is an entire armada including the vendors supplying the underlying hardware, networks, software platforms and trading applications.  They are all immersed in the war.  As new hardware, software and/or algo's are deployed it allows the trader to do battle and speed ahead even if it's just for a short while.  Competitive pressures, increasing market volatility, regulatory imperatives, risk mitigation and a host of other challenges are the land mines and roadside bombs on the long and winding road that stall and slow causing re-tooling and re-stocking the ammunition (i.e. algo strategies). There is no time to stop and catch your breath or stand on the roadside.

Sang Lee from the Aite Group reports that High Frequency Trading has had a significant impact on the overall market, providing greater liquidity, tighter spreads and overall improving the quality of the market.  At the macro level these are great advancements and mark a natural evolutionary step due to so many market changes in recent years (i.e. electronic trading venues, adoption of CEP platforms for algo trading, etc.) in Equities and beyond (i.e. FX and Futures & Options).  Down in the trenches, the battles rage on day by day as a multitude of traders and an untold number of algo strategies provide the market liquidity by moving in and out of positions in milliseconds (or even less time). The trading firms engaged in this never ending conflict drive a set of imperatives on software infrastructures for building and deploying algos in the High Frequency battlefield:

Rapid development and customization of algo's

Algo strategies in the High Frequency world have a limited life time. They soon become obsolete (i.e. whatever alpha they took advantage of has disappeared due to the competition, economic changes, or other situations).  To react and respond to this inevitability, having the right sort of tooling to recalibrate strategies is a necessity. This includes graphical modeling tools for Quants to prototype ideas quickly, backtest with historic data, test in a scalable manner to instill confidence prior to production rollout and lastly dynamic parameterization of strategies from graphical dashboards. Not forgetting the code-slinging types, an Integrated Development Environment (IDE) for support of event processing language (EPL) development for more low-level tasks.


Abstracting over increasingly complex strategy logic

Supporting Quants with a rich and robust set of functionality from the basics (connectivity to markets) to the advanced (Linear Algebra, Black Scholes, and other statistical functions).


Support for the 'ilities (availability, security, reliability, ...) to manage the mundane

Deploy with confidence. An important role of software infrastructure is to instill confidence that deployed strategies are always available, securely accessed and run without failure.


Support for scalable performance, providing high throughput and low latency

This is probably the most paramount requirement in the arms race of High Frequency Trading.  The race to the microsecond is pushing both hardware and software vendors alike. Parallelism in CEP engines like Apama's Correlator can leverage multi-core processor architectures like the Intel Nehalem


Along with my colleague Dan Hubscher,  I have recorded a 30 minute webinar that describes how the Apama platform along with the Apama Algorithmic Trading Accelerator meet these imperatives.

The pre-recorded webinar, is available here:  Apama Algorithmic Trading Accelerator, Build Quickly, Run Fast.

Once again thanks for reading (plus watching and listening to the webinar in this case), you can also follow me at twitter, here.
Louie



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