In 1998, the Securities and Exchange Commission (SEC) authorized automated electronic exchanges in the U.S. markets. Barely a year later, the first High Frequency Trading (HFT) electronic systems were developed, cutting down trade execution to a few seconds. By 2010 this had been reduced to milliseconds and as of today we are dealing with a hundredth of a microsecond.
The possibility now inches towards picoseconds and nanoseconds. To further illustrate the scale of this type of transaction, modern HFT systems can even trade a profit of several cents per trade and the process can be repeated several thousand times a minute!
What is at play in these High Frequency Trading systems is known as algorithmic trading. In this kind of trading all the financial information needed for trading is run through computer codes. This information is not delivered as stories and sentences. It is processed as data in the form of hard, actionable data clusters which the news represents.
“Algorithmic trading is becoming more common to the everyday investor,” said Reinis Lacis, Head of Trading, Leman Capital Management. “Indeed, intelligent investors understand that markets are too efficient; hence consistent returns with minimal capital drawdowns are only possible through rigorous fundamental research, thousands of small margin transactions and speed of light execution. Basically, this is how our FX Wave algorithmic trading platform works – it analyzes data streams, detects trend patterns, and then spreads the risks by splitting large trading lots into multiple smaller orders.”
FX Wave, one of the most complex algorithmic trading platforms, was developed in 2011 by the UK-based asset manager Leman Corporation. Leman’s platform is capable of processing vast amounts of fundamental market data in such a way that its robotic analytics and trading computer modules can read and understand. It does this by scanning news feeds from many different financial data providers, such as Bloomberg or Thomson Reuters, for specific textual patterns that indicate market trends. These textual clues are then transmitted in machine-readable format to the robotic subscribers which ‘listen’ for signal patterns and parse them before executing the resultant investing cues. The platform also aids in strategy development, technical analysis and thorough back testing across historical trading data.
“After years of development, we have reached the point where FX Wave is making our investors and ourselves net investment income even higher than we predicted. At Leman we have proudly designed a perfect trading platform that allows accurate price determination and instant order execution to spur maximum profits during each trading session, with minimal risk,” said Robert Bourke, Head of Technology, Leman Corporation.
Ironically, by investing in a quantitative fund an investor is making a highly qualitative decision. Studies into professionally managed quantitative funds have shown growth considerably higher than that in the field of traditional stock-market investing. Algorithmic funds can be an ideal way to add diversification to a traditional investment portfolio, and to increase overall returns. Of course, these portfolios can suffer losses, if no trends are formed within a trading session, but as a rule those are more than covered with subsequent profits.
Algorithmic trading has seen a year on year growth and integration of more efficient codes and technologies. From small successful quant hedge funds like Leman Capital Management to big industry players like Renaissance Technologies and Goldman Sachs, codes are now responsible for most of the trading activities. As of 2015 estimates put the level of algorithmic trading at about 80% of all trading volumes. The high-frequency systems enable a flash trader to execute thousands of trades every minute. On the other hand, algorithmic trading platforms are designed to analyze newsfeeds, stock performance, trading statements and execute market orders based on extensive quantitative research.
The combination of rapid fire transactions and dizzying volumes of trade makes these algorithmic trading systems inscrutable and inaccessible for most investors. It’s literally a financial jungle in there replete with huge possibilities. At the same time, modern retail quantitative funds, like Leman’s algorithmic Quant Fund, look friendlier than participation in traditional hedge funds with all their burdensome restrictions and entrance charges.
Company Name: The Business Independent
Contact Person: Ron Reiter
Phone: +44 118 984 3509
Country: United Kingdom