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Alternative Market Briefing

Eurex Exchange outlines the challenges and opportunities of high-frequency trading

Tuesday, May 07, 2013

Beverly Chandler, Opalesque London: A recent presentation from Eurex Exchange entitled High-frequency trading – a discussion of relevant issues, the exchange explained the difference between algorithmic trading (AT) and high frequency trading (HFT).

Common factors between the two include pre-designed trading decisions, that both are used by professional traders who are observing market data in real-time and they use automated order submission and automated order management. Other common factors are that there is no human intervention and they access the market directly.

However, peculiar to AT is the fact that it is primarily agent trading, minimizing market impacts (for large orders) and these traders hold significant positions overnight and typically even for days, weeks or months, working an order through time and across markets.

By contrast, Eurex assesses the characteristics of HFT as

  • Proprietary trading
  • High number of orders, rapid order cancellation
  • Mainly spread and arbitrage income
  • No significant position at the end of a day (flat position)
  • Short holding periods, small margin per trade
  • Low latency requirement
  • Focus on highly liquid instruments
Eurex explains that it is difficult to make a conclusive definition of HFT, as it can be applied to a broad spectrum of strategie......................

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