Speed Is Not Enough, Even in HFT
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.
As outlined in our terms and conditions, https://www.infopro-digital.com/terms-and-conditions/subscriptions/ (point 2.4), printing is limited to a single copy.
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. As outlined in our terms and conditions, https://www.infopro-digital.com/terms-and-conditions/subscriptions/ (clause 2.4), an Authorised User may only make one copy of the materials for their own personal use. You must also comply with the restrictions in clause 2.5.
If you would like to purchase additional rights please email info@waterstechnology.com
More on Trading Tech
Bond tape hopefuls size up commercial risks as FCA finalizes tender
Consolidated tape bidders say the UK regulator is set to imminently publish crucial final details around technical specifications and data licensing arrangements for the finished infrastructure.
If M&A picks up, who’s on the auction block?
Waters Wrap: With projections that mergers and acquisitions are geared to pick back up in 2025, Anthony reads the tea leaves of 25 of this year’s deals to predict which vendors might be most valuable.
The Waters Cooler: A little crime never hurt nobody
Do you guys remember that 2006 Pitchfork review of Shine On by Jet?
Removal of Chevron spells t-r-o-u-b-l-e for the C-A-T
Citadel Securities and the American Securities Association are suing the SEC to limit the Consolidated Audit Trail, and their case may be aided by the removal of a key piece of the agency’s legislative power earlier this year.
After acquisitions, Exegy looks to consolidated offering for further gains
With Vela Trading Systems and Enyx now settled under one roof, the vendor’s strategy is to be a provider across the full trade lifecycle and flex its muscles in the world of FPGAs.
Enough with the ‘Bloomberg Killers’ already
Waters Wrap: Anthony interviews LSEG’s Dean Berry about the Workspace platform, and provides his own thoughts on how that platform and the Terminal have been portrayed over the last few months.
BofA deploys equities tech stack for e-FX
The bank is trying to get ahead of the pack with its new algo and e-FX offerings.
Pre- and post-trade TCA: Why does it matter?
How CP+ powers TCA to deliver real-time insights and improve trade performance in complex markets.