Speed Is Not Enough, Even in HFT
![Peter van Kleef Lakeview Capital Market Services Peter van Kleef Lakeview Capital Market Services](/sites/default/files/styles/landscape_750_463/public/import/IMG/764/233764/petervankleef-580x358.jpg.webp?itok=W1cqBo15)
It is more important to make the most of the speed once technology has enabled it, say the panelists at the event, hosted by sibling publications Inside Market Data and Inside Reference Data.
"It's like the evolution theory," says Peter van Kleef, managing director at Lakeview Capital Market Services, based in Starnberg, Germany. "It's not the fastest or the biggest ones that win, but the ones that adapt best to change."
And adapting to change, in the context of today's volatile marketplace, means that cost and risk management must be weighed in discussions about low latency and high-frequency trading (HFT) strategies.
"Speed is important, but speed is not the only thing needed to win," says Donal Byrne, CEO of latency-monitoring software vendor Corvil. "For people doing electronic trading in today's environment, the elements of cost management and risk management are equally important. This is not to say that the time for speed has passed—quite the opposite. There's no real limit, barring the speed of light, on how fast these things can get. It's really just how fast everyone else decides to move, and that's ultimately limited by cost and risk, so there's a balancing action that happens here—we're right in the midst of that."
Lakeview's van Kleef says firms must either find different data from their competitors or come up with ways of looking at the same data differently—the latter being more of a challenge.
To come up with something that nobody else has thought of is always difficult. If you go to a new continent and no-one else has landed there, then exploring that continent is easy, but to find a new continent these days is pretty tough.
"To come up with something that nobody else has thought of is always more difficult," he says. "If you go to a new continent and no one else has landed there, then exploring that continent is easy, but to find a new continent these days is pretty tough."
It’s All Semantics—Or Is It?
One differentiator is semantic analysis, which could give firms a global edge, according to van Kleef, but he says he doubts its ability to impact decisions on a microsecond basis, which would be necessary for it to be of use in speed-reliant strategies.
"Semantic analysis, in my book, really doesn't work and will never work in terms of finding out what something really means for the market," he says. "I don't think it will be possible from a machine, at least in my lifetime. That will not happen. You can make an informed guess, but to make an informed guess you need a sample, averages, distribution, and you need to see how it changes, and that is nothing that will ever happen in microseconds."
Corvil's Byrne, meanwhile, says semantic analysis can still be of use in the trading domain, but he says the idea of using algorithms based upon sentiment changes in social media to effect trading decisions would end in disaster.
"I think sentiment analysis has a role to play in trading because sentiment fundamentally changes volume, and volume fundamentally changes the characteristics of the systems that we trade on, and when those systems are under that level of pressure, different latency arbitrage opportunities arise," he says. "But I think, traditionally, artificial intelligence, inference engines and all those things have proven a disaster because, in the world of trading, people tend to take small time increments and they want predictable outcomes, and when you get to social media and sentiment inferencing, those two factors don't apply."
The Bottom Line
• Speed is not the be-all and end-all when it comes to getting ahead of the game.
• Cost management and risk management are equally important considerations.
• The jury is still out on the potential benefit of sentiment analysis and skepticism abounds regarding using it as part of a trading algorithm.
Only users who have a paid subscription or are part of a corporate subscription are able to print or copy content.
To access these options, along with all other subscription benefits, please contact info@waterstechnology.com or view our subscription options here: http://subscriptions.waterstechnology.com/subscribe
You are currently unable to print this content. Please contact info@waterstechnology.com to find out more.
You are currently unable to copy this content. Please contact info@waterstechnology.com to find out more.
Copyright Infopro Digital Limited. All rights reserved.
You may share this content using our article tools. Printing this content is for the sole use of the Authorised User (named subscriber), as outlined in our terms and conditions - https://www.infopro-insight.com/terms-conditions/insight-subscriptions/
If you would like to purchase additional rights please email info@waterstechnology.com
Copyright Infopro Digital Limited. All rights reserved.
You may share this content using our article tools. Copying this content is for the sole use of the Authorised User (named subscriber), as outlined in our terms and conditions - https://www.infopro-insight.com/terms-conditions/insight-subscriptions/
If you would like to purchase additional rights please email info@waterstechnology.com
More on Trading Tech
Ace high or busted flush? Digital Asset’s mixed fortunes mirror DLT adversity
The vendor hoped to remodel post-trade using blockchain technology—and it still might—but its bumpy progress raises questions over the future of DLT in finance.
This Week: BlackRock/Preqin, Trading Technologies, FIA Tech and more
A summary of some of the past week’s financial technology news.
Adaptive’s Aeron goes live on Microsoft Azure Marketplace
The messaging software used for building bespoke trading platforms is now available on Microsoft’s marketplace, making it accessible through major cloud providers.
Bloomberg, industry bodies push back on Cboe’s proposed OEMS rule change
Some industry bodies disagree with the options exchange’s proposal to carve its Silexx OEMS out of the SEC’s definition of an exchange facility and place it into a separate business line.
Waters Wrap: CME, Google and the pursuit of ultra-low-latency trading
CME Group and Google have announced Aurora, Illinois, as the location for the exchange’s new co-location facility. Anthony explains why this is more than just the next phase of the two companies’ originally announced project.
WatersTechnology latest edition
Check out our latest edition, plus more than 12 years of our best content.
Natixis refines in-house interoperability model
The French asset manager has refined its canonical data model over the last decade, as the interoperability movement continues to evolve.
Zeros and ones: Industry contemplates T+0 as the next step
With the North American transition to T+1 settlement complete, same-day settlement could be the next goalpost set, though skeptics are many.