infographic hft
DESCRIPTION
Infographic HFTTRANSCRIPT
HIGH FREQUENCY
TRADING
www.finance-watch.org
1%
EU
USA
2005 2012
21%
37%
53%
IT TAKES 350 MILLISECONDS TO BLINK
IN THIS TIME 7000 HTF TRANSACTIONS ARE EXECUTED
$££ $ ¥ € £ $ ¥ € $££ $ ¥ € £ $ ¥ € $££ $ ¥ € £ $ ¥ € $££ $ ¥ € £ $ ¥ € $££ $ ¥ € £ $ ¥ € $££ $ ¥ € £ $ ¥ € $££ $ ¥ € £ $ ¥ € $££ $ ¥ € £ $ ¥ € $££ $ ¥ € £ $ ¥ € $££ $ ¥ € £ $ ¥ €
(It takes 5 microseconds to complete 1 order)
Coming next? MICROWAVE TRADING
GAIN 21 MILLISECONDS (35% Faster)
GAIN 1.6 BILLION POUNDS
ATLANTIC OCEANNEW YORK LONDON
Chicago
NYC
London Moscow
Dubai
Singapore
ROUND TRIP
9 MILLISECONDS
ROUND TRIP 60 MILLISECONDS
ROUND TRIP
40 MILLISECONDS
ROUND TRIP
125 MILLISECONDS
ROUND TRIP
65 MILLISECONDS
HFT – WIRING THE PLANET
UNDER CONSTRUCTION
2006 – WAVE OF LIBERALISATIONCalled MiFID (Europe) & Reg NMS (USA)
Privatisation – Deregulation of Stock Exchanges
Pre 2006 – Regulated (40 venues)
2012 – Deregulated (256 venues)
DISORDER
SOME TECHNICAL BUGS IN THE SYSTEM
WHAT IS HFT?
WHAT IS THE PROBLEM?
Flash Crash - the very first HFT crash.Loss: 200 mil $ (1 trillion $ disappear).
1st August 2012. Knight Capital… loss: 440 mil $
23rd March 2012 BATS IPO – IPO Cancelled
18th May 2012 Facebook IPO – 3h paralysis of quotation (NBBO)
FINANCIAL MARKETS 2.0: A WHOLE NEW GAME
Fragmentation increases complexity reduces transparency: markets become more opaque.
Stock exchanges become for-profit, listed companies, competing with each other. Serving the real economy becomes a secondary purpose.
Consequences: Speculative activity of financial markets has grown tremendously. Ultra –fast trading algorithms (robot traders) have replaced human traders. The system tends |to serve its own purposes. More betting.Less investing.
A whole new game :High Frequency Trading exploded in the last 10 years, accounting in 2012 for more than 53% of equity trading in the USA and 37% in the European Union.
Cables NYC-London (0.3 bil US $) and London-Tokyo (1.5 bil US $) are under construction, yet new microwave technologies are already challenging their speed supremacy...
HFT is the use of sophisticated algorithms with the aim of trading securities (stock, derivatives, bonds) ever closer to the speed of light. It is currently revolutionizing how financial markets
work, the role of its operators and intermediaries as well as their impact on society.
Not only is microsecond trading completely disconnected with the fundamental value of financial instruments, we have now entered an
ecosystem that is remote from the human brain’s capacities.
it takes a chess grandmaster approximately 650 milliseconds just to realize that she is in trouble (i.e. her king is in checkmate). In many areas of human
activity, the quickest that someone can notice such a cue and physically react, is approximately 1000 milliseconds (1 second)
The first problem is related to technological instabilities. This new financial ecosystem creates unprecedented disorder. For instance, no less than 18,520
ultrafast crashes occurred between 2006 and 2011 (10 per trading day)!
UNFAIRNESS
RISE IN HFT ACTIVITY
FAIR, ORDERLY & TRANSPARENT. by being…TRUSTHow? Build
Stock exchanges help financing THE REAL ECONOMY
NEW TRADITIONAL WIREGAIN 5 MILLISECONDS
Andrew Bach, New York Stock Exchange
Source: seangourley.com
“The speed of light limitation is getting annoying”
3HRS 1HRS 10MINS 1MINS 3SECS 650MS 1MS 1x10-6S 1x10-9
S
HUMAN DECISIONECOSYSTEM
ALGORITHMICECOSYSTEM
LIM
IT O
F H
UMAN
DEC
ISIO
N M
AKIN
G
SCIENTIFICJOURNAL
WASHINGTONPOST ARTICLE
NEW YORKERSTORY
TIME FORLIGHT TO
TRAVEL FROMNY TO LONDON
(65MS)
FASTEST HARDWARETRADE EXECUTION
(740 NANOSECONDS)
FASTESTTRADE TIME
NASDAQ140 CHRTWEET
HOW LONG DOES IT TAKE TO PROCESS INFORMATION?
DISTRUSTTraditional investors and corporations are increasingly leaving these markets and
putting their money into bank deposits or bonds, for example. The reasons include macro-economic factors as well as concerns over the frequent crashes linked to speed and predatory or perceived abusive strategies by high-frequency traders. To illustrate: US domestic equity mutual funds, one of the largest pools of retail investor money, withdrew $538bn from stock markets between 2007 and 2012.
In the same period, the number of listed companies in the US decreased by 44%.
The current lack of regulation threatens the very model of a financial system that serves society. MiFID2 (2013) regulation
could put the EU at the forefront of corrective measures!STAY TUNED!
REGULATIONO%
NEAR
>>> >>>
>>>>>>
Source: Tabb Group estimate
Source: Larry Tabb estimates in US
As in any field, new technology brings improvements, such as more transparency, lower costs through automation and better public access. Some of that has happened in financial markets but has little to do with HFT. HFT as a predatory trading strategy
involves taking this technology to an extreme in order to take advantage of slower, traditional traders. They are helped in this by the stock exchanges, which o�er these
high-end clients expensive, tailor-made services for the purpose.
ROUND TRIP 170 MILLISECONDS
ROUND TRIP 80 MILLISECONDS
ROUND TRIP 80 MILLISECONDS
USA >< JAPAN
Hong KongOsaka Tokyo