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‘Online’ Algorithmic Trading Articles & Financial Insight

  • Market Data Maelstrom

    SUBSCRIBERS ONLYImmense market data volumes and a relentless latency race to zero has created plenty of challenges for high (and low) frequency trading firms as they attempt to trade modern markets.  Not least of which being the need to be able to spot faults at trading speed.  Bob Giffords talks to experts from leading buy- and sell-side firms to explore the world of FPGAs, microsecond timestampting, clustered trading engines and more...

  • Conference Take-aways: High Frequency Trading for Fund Management Firms 2011

    SUBSCRIBERS ONLYCrowded trades, indifferent regulators, diminishing margins, the latency arms race, and the need to get the right kind of silicon enhancements were just some of the challenges being discussed at High Frequency Trading for Fund Management Firms 2011. Conference chairman and regular Automated Trader columnist, Bob Giffords, gives his detailed report from the event, and analyses the discussions around latency, regulation, risk, and market structure.

  • Conference Take-Aways: HiFREQ TRADE 2011Conference Take-Aways: HiFREQ TRADE 2011

    28 February 2011 - Latency measured in nanoseconds, FPGA's, ongoing systemic risk and worries over knee-jerk regulatory changes, were just some of the topics discussed at this year's HiFreq Trade Conference in London. Conference Chairman and regular Automated Trader contributor, Bob Giffords, offers his insights into the key points raised at the event.

  • Article Preview:  Anatomy of an Algo - Welcome to the Dry SideArticle Preview: Anatomy of an Algo - Welcome to the Dry Side

    FREE ARTICLEAnatomy of an Algo in our Q1-2011 issue describes an intelligent liquidity seeking algo attempting to get a large order executed in a small cap Austrian stock. In this preview, Citigroup's Paul Bently offers some insights into the concept behind the algo.

  • Conference Take-Aways: TradeTech Architecture Data Technology 2011

    SUBSCRIBERS ONLY15 February 2011 - Bob Giffords reports on the key topics and themes from this year's TradeTech Architecture Data Technology conference in London.

  • Fit to Fade? News Driven Algorithmic Trading Strategies

    SUBSCRIBERS ONLYWith potentially terabytes of conflicting data arriving on multiple ultra low latency data feeds, a myriad of ways to slice and dice the flow of information, and the not inconsiderable challenge of accurately factoring in sentiment and expectation to challenge any news algo, automating trading from news and getting it right is possibly one of the greatest challenges for a high frequency trading firm. Bob Giffords analyses the extent and sophistication of some of the news driven trading strategies currently in operation.

  • eFX: Speed or Bleed. Globally Fragmented Liquidity and Ultra Low Latency Forex Trading.eFX: Speed or Bleed. Globally Fragmented Liquidity and Ultra Low Latency Forex Trading.

    SUBSCRIBERS ONLYForex traders knew all about fragmented liquidity long before the equity trading community had to grapple with the fragmentation problem. But the move first to electronic trading, followed by the arrival of high frequency FX traders has had its challenges. And opportunity springs from challenge. Bob Giffords speaks to the key players to find out how the FX trading community has adapted to an ultra low latency trading environment.

  • Webinar: New Trading Opportunities in Commodity Markets

    REGISTERED VIEWERSBob Giffords moderates Automated Trader's webinar "New Trading Opportunities in Commodity Markets" with a panel including: Aaron Gill, Head of Business Development, NYSE Liffe; Tim Ferguson, Director, RTS Realtime Systems; and Andrew Chart, Head of PTG Sales, Newedge.  

  • Macro View: Are you feeling Queasy too?

    FREE ARTICLEWith the Obama administration seemingly neutered following November's mid-term elections - in the process scuppering the possibility of any fiscal stimulus from the Democrats' public spending agenda, markets will be closely montoring the effects of the second round of quantitative easing to see if it can bring a pulse back to the US economy.  So, what are the chances of Uncle Sam getting out of intensive care and back to full health with a trip on QE2? Here's one fund manager's view.   

  • Macro View: Feeling Queasy

    FREE ARTICLENew York based Conquest Capital have an impressive 12+ year track record running systematic models, but that doesn't mean you can't have a macro view. And Marc H. Malek, Conquest's Managing Partner, does. Here, as an addition to the full interview with Marc from the Q4-2010 issue of Automated Trader, Marc describes the forces that he sees currently driving global markets.

  • Flash Crash - The Hunt for Weapons of Market Destruction

    SUBSCRIBERS ONLYBob Giffords scours September's CFTC/SEC "Flash Crash" report for the regulators' conclusions, lessons and remedies

  • Flash Crash: A Smoking Gun?

    FREE ARTICLEWith US regulators still combing the evidence for the smoking gun, Alison Crosthwait offers Instinet's "Flash Crash" analysis and conclusions. Alison Crosthwait at Instinet investigates.

  • Conference Take-Aways: FPL EMEA Trading Conference 2010

    FREE ARTICLEThere is something about a really big conference with 750 delegates that makes you feel you are getting somewhere. There is so much going on between the main event and sideshows, so many exhibits and so much ambitious networking that there is a real sense of momentum.

  • “Trading Hubs Reach for the Clouds”

    SUBSCRIBERS ONLYThe e-trading landscape is being radically transformed by two irresistible forces: proximity trading and cloud computing. Together they create rich opportunities for e-services providers. So what are the drivers and how can firms stay ahead of the curve?

  • Conference Take-Aways: TSAM Trading Technologies 2010

    FREE ARTICLEThere is always so much going on at Osney Media’s annual TSAM conference on technology solutions for asset managers that you wish you could attend all the streams, but in the end you have to choose. As chairman of the trading technologies stream my choice was made, but it proved fortunate as delegates this year were in a serious investment mood.

  • Conference Take-Aways: InVantage Group’s HIFREQ TRADE

    FREE ARTICLELast week’s HIFREQ TRADE event in London provided some fascinating insights into high frequency trading and its effects on the market ‘fabric’. Bob Giffords, Independent Banking & Technology Analyst & Conference Chairman sums up some of the key points.

  • Conference Take-Aways: TradeTech Architecture 2010Conference Take-Aways: TradeTech Architecture 2010

    FREE ARTICLEExotic silicon, artificial immune systems, proximity trading hubs and news flow agos were just some of the topics discussed this year at TradeTech Architecture where the mood was altogether more upbeat. Bob Giffords outlines the key themes and where the technology dollars are headed.

  • Listing Market Outages: A continuity and price formation study

    FREE ARTICLEAs trading fragments to multiple trading venues in a post-MiFID landscape, there has been considerable discussion about whether price formation can take place on the new trading venues (Multilateral Trading Facilities or MTFs) or whether it is inextricably linked to the “primary” or “listing” market.

  • Bats: “Absolutely enough liquidity for price formation”Bats: “Absolutely enough liquidity for price formation”

    SUBSCRIBERS ONLYPaul O’Donnell, COO BATS Europe, explains that the MTF’s are already credible price formation venues and that the recent LSE outages serve to highlight that.

  • SOR headache continues....SOR headache continues....

    SUBSCRIBERS ONLYKnight Capital’s Kee-Meng Tan draws on his experience from the US and predicts that it’s only a matter of time before traders are completely comfortable using alternative venues when the LSE is down.

  • Three Hour Auction: Three Hour Auction: "Wholly Inappropriate..."

    SUBSCRIBERS ONLYRichard Balarkas, CEO, Instinet Europe, gives his opinions and insight on some of the questions thrown up by the recent outages at the London Stock Exchange

  • It's called an alternative market for a reason...It's called an alternative market for a reason...

    SUBSCRIBERS ONLYTodd Golub, COO, Nasdaq OMX Europe offers his thoughts on the recent outages at the LSE and the way they were handled.

  • LSE Outage: Fidessa's Steve Grob on the outage, the auction and the implicationsLSE Outage: Fidessa's Steve Grob on the outage, the auction and the implications

    SUBSCRIBERS ONLYWhat do we expect from our markets when the primary exchange goes down? Steve Grob, Director of Strategy at Fidessa, lends his thoughts on the outage at the LSE last week.

  • As the focus turns to risk management, don’t neglect the front officeAs the focus turns to risk management, don’t neglect the front office

    FREE ARTICLEAll the indicators are pointing to a sharp decline in technology spending in financial markets. That obviously makes maximising the value-add of tech investment an absolute must. Zohar Hod of SuperDerivatives argues that this does not automatically imply allocating all available budget to the back/middle offices.  

  • Develop Cleaning Algorithms from "Quality Money Management" by Andrew Kumiega and Benjamin Van Vliet

    FREE ARTICLEAs the competition to produce and quickly deploy profitable trading models continues to increase, many participants are starting to pay more attention to refining their model development process. In the third of three excerpts from their book "Quality MoneyManagement", Andrew Kumiega and Benjamin Van Vliet discuss the development of data cleaning algorithms.

  • Researching Quantitative Methods from "Quality Money Management" by Andrew Kumiega and Benjamin Van Vliet

    FREE ARTICLEAs the competition to produce and quickly deploy profitable trading models continues to increase, many participants are starting to pay more attention to refining their model development process. In the second of three excerpts from their book "Quality MoneyManagement", Andrew Kumiega and Benjamin Van Vliet explain how research methods for quantitative strategies fit into the overall development process.

  • Excerpt from Excerpt from "Quality Money Management" by Andrew Kumiega and Benjamin Van Vliet

    FREE ARTICLEAs the competition to produce and quickly deploy profitable trading models continues to increase, many participants are starting to pay more attention to refining their model development process. In the first of three excerpts from their book "Quality Money Management", Andrew Kumiega and Benjamin Van Vliet provide an overview of an optimal process for trading model development.

  • A stochastic model for order book dynamics

    REGISTERED VIEWERSWe propose a stochastic model for the continuous-time dynamics of a limit order book. The model strikes a balance between two desirable features: it captures key empirical properties of order book dynamics and its analytical tractability allows for fast computation of various quantities of interest without resorting to simulation. We describe a simple parameter estimation procedure based on high-frequency observations of the order book and illustrate the results on data from the Tokyo stock exchange. Using Laplace transform methods, we are able to efficiently compute probabilities of various events, conditional on the state of the order book: an increase in the mid-price, execution of an order at the bid before the ask quote moves, and execution of both a buy and a sell order at the best quotes before the price moves. Comparison with high-frequency data shows that our model can capture accurately the short term dynamics of the limit order book.

  • FPGA Acceleration of European Options PricingFPGA Acceleration of European Options Pricing

    FREE ARTICLEToday, Monte Carlo (MC) methods are widely used in finance to price derivative securities. In this approach, the value of the option is expressed in terms of an integral of very high dimensionality. Monte Carlo methods are used to estimate the value of this integral by brute force. These calculations consume a significant portion of the run-time and energy of financial data centers. Therefore, we present a hardware accelerator that computes the price of a European call option via MC. In our approach, after some initial setup, the entire MC simulation is performed by the FPGA. We demonstrate performance in excess of 250× that of a modern 3 GHz multi-core processor. By Nathan Woods, XtremeData, Inc.

  • Hard and Fast? Hard and Fast?

    REGISTERED VIEWERSThis is an extended version of the Tech Forum that appeared in the Q1 2008 edition of Automated Trader. It includes an additional interviewee and expanded answers from all interviewees on the latest techniques for hardware and networking infrastructures.

  • Structural ModelsStructural Models

    REGISTERED VIEWERSStatistical Arbitrage: Algorithmic Trading Insights and Techniques Chapter 3 Structural Models

  • Statistical ArbitrageStatistical Arbitrage

    FREE ARTICLEStatistical Arbitrage: Algorithmic Trading Insights and Techniques Chapter 2 Statistical Arbitrage

  • Monte Carlo or BustMonte Carlo or Bust

    FREE ARTICLEStatistical Arbitrage: Algorithmic Trading Insights and Techniques Chapter 1 Monte Carlo or Bust

  • Data-Mining Bias: The Fool’s Gold of Objective TA

    REGISTERED VIEWERSThe following excerpt is from Chapter 6 of David Aronson's recently published book "Evidence-Based Technical Analysis". Together with Chapters 4 and 5 of the book it addresses aspects of statistics that are particularly relevant to evidence-based (as opposed to subjective) technical analysis.

  • Evidence-Based Technical Analysis: Hypothesis Tests and Confidence Intervals

    REGISTERED VIEWERSThe following excerpt is from Chapter 5 of David Aronson's recently published book "Evidence-Based Technical Analysis". Together with Chapters 4 and 6 of the book it addresses aspects of statistics that are particularly relevant to evidence-based (as opposed to subjective) technical analysis.

  • Evidence-Based Technical Analysis: Statistical Analysis

    REGISTERED VIEWERSThe following excerpt is from Chapter 4 of David Aronson's recently published book "Evidence-Based Technical Analysis". Together with Chapters 5 and 6 of the book (which will be available as excerpts later) it addresses aspects of statistics that are particularly relevant to evidence-based (as opposed to subjective) technical analysis.

  • Naked Option by Joe Kolman

    REGISTERED VIEWERSDave Ackerman, the narrator of Naked Option, is a brilliant trader but one day, recklessly trying to one-up his firm's superstar, he goes naked on an option trade and loses $112 million in two hours. His career is over. Then he hears about an auditing job at an investment bank. He knows within minutes that something is very wrong, but he's so desperate, he takes the job.

  • Financial Data Mining with Genetic Programming: a Survey and Look Forward

    REGISTERED VIEWERS Genetic Programming (GP) is an appealing machine-learning technique for tackling financial engineering problems: it belongs to the family of evolutionary algorithms that have proven to be remarkably successful at handling complex optimization problems, and possesses the unique feature of producing solutions under a symbolic form that can be understood and analyzed by humans. Over the last decade, GP has been applied to generate financial trading strategies, forecast stocks and options prices, or grasp some insight into the dynamics of the markets and the behavior of the agents. In this paper, we first provide a brief survey of the existing studies, then highlight fields of investigations that, we believe, should lead to enhance the applicability and efficiency of GP in the financial domain. By Nicolas NAVET and Shu-Heng CHEN

  • Entropy Rate and Profitability of Technical Analysis: Experiments on the NYSE US 100 Stocks

    FREE ARTICLE The entropy rate of a dynamic process measures the uncertainty that remains in the next information produced by the process given complete knowledge of the past. It is thus a natural measure of the difficulty to predict the evolution of the process. The first question investigated here is whether stock price time series exhibit temporal dependencies that can be measured through entropy estimates. Then we study the extent to which the return of financial trading rules is correlated with the entropy rates of the price time series. Experiments are conducted on EOD data of the stocks composing the NYSE US 100 index during period 2000-2006, with the use of genetic programming to induce the trading rules. By Nicolas NAVET and Shu-Heng CHEN

  • Assessing the Risk and Return of Financial Trading Systems - a Large Deviation Approach

    FREE ARTICLEWe apply large deviation theory to assess the probability that a trading system performs below or above a certain threshold. Our technique does not require that the distribution of the performance criterion obeys a closed-form equation, and can accept as input empirical distributions given under the form of frequency histograms obtained by backtesting or from prior use of the trading system. A nice property of the technique is that it can be easily automated and integrated into a trading platform. Furthermore, the approach is not limited to a single trading system but can be applied on portfolio of trading systems. By Nicolas NAVET and René SCHOTT

  • Transaction Cost ResearchTransaction Cost Research

    FREE ARTICLEAn excerpt from Kendall Kim's forthcoming book "Electronic and Algorithmic Trading Technology: The Complete Guide" Chapter 10: Transaction Cost Research

  • Pretests for genetic-programming evolved trading programs: “zero-intelligence” strategies and lottery trading - Part 2

    FREE ARTICLEPart 2 of Pretests for genetic-programming evolved trading programs: “zero-intelligence” strategies and lottery trading bootstrap paper. By Shu-Heng Chen and Nicolas Navet

  • Pretests for genetic-programming evolved trading programs: “zero-intelligence” strategies and lottery trading - Part 1

    FREE ARTICLEIn this paper, we discuss a series of pretests, based on several variants of random search, aiming at giving more clearcut answers as to whether a GP scheme, or any other machine-learning technique, can be effective with the training data at hand. Precisely, pretesting allows us to distinguish between a failure due to the market being efficient of due to GP being inefficient. The analysis is illustrated with GP-evolved strategies for three stock exchanges exhibiting different trends.

  • A generalised formula for European option values as the basis for an automated arbitrage strategy

    SUBSCRIBERS ONLYThis paper considers a generalised approach to the problem of rational value calculation of European options. A distinctive feature of the suggested approach is a rejection of the base asset market being described by means of standard price formation models. Only a relatively weak hypothesis connecting the base asset value with the market activity is imposed on the base asset behaviour. A generalised formula derived from this assumption describes in practice the behaviour of all options. By Vitaly Kurbakovsky and Dmitry Bourtov.

  • Catching up with technology: The impact of regulatory changes on ECNs/MTFs Part 2

    FREE ARTICLEIn recent years the landscape of trading venues has been transformed by technological ad­vances. New trading concepts and infrastructures along the securities trading value chain have been established. With RegNMS ("Regulation National Market System") in the US and MiFID ("Markets in Financial Instruments Directive") in the EU coming into effect in 2006 and 2007 respectively, regulators on both sides of the Atlantic respond to these changes. Both new legislations try to catch up with recent years' technological advances and intend to cre­ate a level playing field between the different types of trading venues and a harmonisation in the order execution process. Against this background, the paper illustrates and analyses the regulatory environments and the impact of their upcoming changes on ECNs and MTFs ("Multilateral Trading Facilities") – the European analogue of ECNs – with a specific focus on Europe. Based on the framework of market microstructure theory and the existing market structures, the paper will develop scenarios on how the upcoming regulatory overhauls and recent technological improvements will alter the competitive landscape between Regulated Markets, ECNs / MTFs and order flow internalising entities. By Peter Gomber, Markus Gsell Chair of e-Finance University of Frankfurt, Main

  • Catching up with technology: The impact of regulatory changes on ECNs/MTFs Part 1

    FREE ARTICLEIn recent years the landscape of trading venues has been transformed by technological ad­vances. New trading concepts and infrastructures along the securities trading value chain have been established. With RegNMS ("Regulation National Market System") in the US and MiFID ("Markets in Financial Instruments Directive") in the EU coming into effect in 2006 and 2007 respectively, regulators on both sides of the Atlantic respond to these changes. Both new legislations try to catch up with recent years' technological advances and intend to cre­ate a level playing field between the different types of trading venues and a harmonisation in the order execution process. Against this background, the paper illustrates and analyses the regulatory environments and the impact of their upcoming changes on ECNs and MTFs ("Multilateral Trading Facilities") – the European analogue of ECNs – with a specific focus on Europe. Based on the framework of market microstructure theory and the existing market structures, the paper will develop scenarios on how the upcoming regulatory overhauls and recent technological improvements will alter the competitive landscape between Regulated Markets, ECNs / MTFs and order flow internalising entities. By Peter Gomber, Markus Gsell Chair of e-Finance University of Frankfurt, Main

  • Market heterogeneities and the causal structure of volatility - Part 2

    FREE ARTICLEPart two of the paper exploring the correlation between historical and realized volatilities. By Paul Lynch and Gilles Zumbach

  • Market heterogeneities and the causal structure of volatility - Part 1

    FREE ARTICLEThe correlation between historical and realized volatilities is studied empirically for a large range of time intervals. Similarly, the correlation between the volatility changes and the realized volatilities is studied. Both quantities measure the response functions of the market participants. These correlations show explicitly the heterogeneous structure of the market according to the characteristic time horizons of the different agents. It reveals a volatility cascade from long to short time horizons, with a structure different from the one observed in turbulence. A comparison is made with several theoretical processes used in finance, allowing to better understand the role and interactions of the market participants (intra­day trader, portfolio manager, central banks, pension funds, ...). Moreover, we have developed a new ARCH-type process that incorporates the different groups of agents, with their characteristic memories. This process reproduces well the empirical response function, and allows us to quantify the importance of each group. By Paul Lynch and Gilles Zumbach

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