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The High Frequency Game Changer: How Automated Trading Strategies Have Revolutionized the Markets

ISBN: 978-0-470-77038-2
Hardcover
176 pages
April 2011
List Price: US $60.00
Government Price: US $30.60
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The High Frequency Game Changer: How Automated Trading Strategies Have Revolutionized the Markets (0470770384) cover image
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Introduction xi

Acknowledgments xiii

Chapter 1 Birth of High Frequency Trading: Equity Markets Go Electronic 1

Defining High Frequency Trading 2

Who are the High Frequency Traders? 6

Impact of High Frequency Trading 9

Building a High Frequency Trading Team 13

Chapter 2 Market Structure 15

Order Handling Rules of 1997 16

Growth of Electronic Communication Networks 17

Regulation National Market System 22

Market Fragmentation versus Competition 28

Dark Pools 32

Chapter 3 Trading Infrastructure 47

Rise of High Performance Technology Vendors 49

Key Components of High Performance Infrastructure 52

Feed Handlers 52

Ticker Plant 54

Messaging Middleware 55

Storage 58

Networking 59

Colocation 60

Sponsored Access 61

Chapter 4 Liquidity 71

HFT as Liquidity Providers 71

Flash Crash 72

Chapter 5 Trading Strategies 75

Examples of Algorithms 77

Order Types 78

Flash Orders 79

High Frequency Trading and Predatory Strategies 79

Chapter 6 Expansion in High Frequency Trading 81

Futures 81

Fixed Income 84

Foreign Exchange Market 85

Equity Options 92

Over the Counter Derivatives 94

Expansion into Global Markets 94

Chapter 7 Positives and Possibilities 105

Commoditizing High Frequency Trading 106

Trading Technology Demands and Preferences 108

Internal Focus 109

Choosing Vendors 110

Finding the Next Opportunity 111

Issues and Risks 114

Order Routing Gets Smart 115

Smart Order Routing’s Future 118

Is Artificial Intelligence Next? 121

Economic Indicators 121

News 122

Securities and Exchange Commission Filings 123

The Pseudo-Semantic Web 125

Going Global 128

The Next Wave 129

Chapter 8 Credit Crisis of 2008: The Blame Game 131

U.S. Federal Reserve 131

Regulatory Agencies 132

Credit Agencies 132

Politicians 132

End-Users of Derivative Products 133

Recent Regulatory History 134

Financial Modernization Act of 1999 134

Commodity Futures Modernization Act of 2000 134

Dodd Frank Wall Street Reform Act of 2010 135

Ending Too Big to Fail Bailouts 136

Creating Transparency and Accountability for Derivatives 137

Hedge Funds 137

Credit Rating Agencies 138

Executive Compensation and Corporate Governance 138

Impact of Potential Regulations and Rule

Changes—Securities and Exchange Commission

Concept Release 139

Chapter 9 Conclusion 141

Glossary 143

About the Authors 149

Index 151

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