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Alternative Market Briefing

High frequency trading may be popular, but players come and go quickly

Tuesday, December 29, 2015

Bailey McCann, Opalesque New York:

High-frequency traders (HFTs) may be exploiting certain advantages in the market, but delegates at the recent Opalesque Singapore Roundtable say that those advantages come at a high cost and few players stick around for long.

"If you factor in everything, the aggregate cost of being connected directly to an exchange is easily about $100,000 a year," explains delegate Steve Knabl, Managing Partner, Swiss Asia Financial Services. That per-exchange price tag can create a hefty cost basis for firms in markets like the US, where there are some 50 exchanges.

The majority of high-frequency traders tend to engage in niche strategies across these exchanges as well, limiting their long-term viability even if a given firm has the cash on hand to support the cost of the trading infrastructure. "Most of the low latency trading firms are also highly vulnerable to any changes in the trading environment," adds Roland Schwinn, CEO, Eurex Clearing Asia. "This can be anything, starting from a change in market patterns to a modification of the exchange’s matching algorithm." These vulnerabilities create a constantly revolving list of HFT's best performers, making it hard to keep track of who is in the market at any given time.

As niche advantages regularly evaporate for high-frequency traders, algorithms constantly ping the market looking for big orders. Once an order is detected, HFT's can engage in front-running or make types of competi......................

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