IMC to explain high frequency trading
It has been quiet around IMC for a while now, but last week they could be found again in the press. This time in a rather positive way and in a newspaper a lot more prestigious than amsterdamtrader.
In the trading room section of the Financial Times (registering required), journalist Jeremy Grant asked for an industry insider to throw some light on High Frequency Trading. Several traders responded, but the award for explaining HFT in an easy way was won by IMC. It’s not exactly rocket science, but one must admit they succeeded in explaining the matter in layman’s terms.
Here’s Robin van Boxsel, Remco Lenterman and Tim Edwards from IMC:
“Essentially, a market maker provides liquidity, which we believe is positive within financial markets, if not a fundamental condition of them. Speed is an essential tool for market makers to manage risk by controlling the amount of time that their quotes are placed on an exchange. This is commonly referred to as exposure time.
For every quote in the market that a market maker provides, they are exposed to that quote for the time it takes for a cancellation to be processed, or the time it takes to remove the exposure following a market move or a move in a related instrument.
Basically the higher the speed, the lower the time between when information is received and the time when such information is incorporated into prices. For any given order, the value of this fraction of a second exposure is very low. However, across an entire market venue, this adds up to very large numbers.
In the cases where exchange speeds are high, it enables market makers to manage their risk better and therefore they are willing to quote narrower spreads and for bigger size. The relationship between speed, spread and liquidity is evident on many exchanges and clearly adds value to all participants.
It is clear that in the past 10 years, major markets have become substantially more liquid with narrower spreads and lower transactions costs. Speed has played an essential role in this development.
A case in point is that markets that continue to have slow systems and/or low bandwidth have very little displayed liquidity (Hong Kong, Australia, Osaka Stock Exchange) and that in order to facilitate increased liquidity, they need to change these systems, which is happening.
The role of an exchange is to supply a venue for buyers and sellers to access securities. This is the core of capital formation, spreading risk from those who cannot bear it to those who seek it. Market makers even out the distribution of risk through portfolio management, and give liquidity where there is not a natural counterparty. Exchanges are providing exactly the service we expect of them by increasing speeds and lowering order acknowledgement times, aiding market participants to provide the liquidity we expect to be available in a market centre.
We hope we have been able to shed some light on this subject.” (pdf)
Of course this beautifully manages to not delve into the question what liquidity providing is if you’re there for only a few microseconds for a few lots
At least something positive about market making instead of all that non informed marketmaker bashing .
Sweeney’s monitor setup.
i agree with the first comment .. if IMC is going to give away the game, they might tell the audience how this is profitable to them .. i.e. quote small and retract/dime quickly/smartly on any hits/pings .. thats pretty much it .. is this that hard for an average joe to understand HFT ..
HFT != Market Making Options
HFT is not really the same als market making in options, but it does explain a lot of the need for speed.
Better explanation:
http://www.tradeworx.com/TWX-SEC-2010.pdf
HFT can be market making in options, depending on what you trade. Quoting Wavin probably doesn’t fall in that category, Kospi on the other hand is a different story.
anyone know where i can find a list of each of the registered market makers for each of the major exchanges? And is there any data on who does how much volume?
go to the exchange’s website ?!
my version of HFT
http://www.youtube.com/watch?v=Hs3WYGRNILA
Hum, quite amusing explanation of IMC. It is more of an explanation of their business model of market making by the means of HFT. If this was the purpose – then the explanation might be of value. But let´s not forget May 5th in the US of A: I recall several so called HFT market makers switching off their “machines”. So please, IMC, don´t give the uninformed out there the ILLUSION your company is supposed to be a MARKET MAKER ! Your company is a market maker as long as the SH1T does not hit the fan. But if there is trouble in the financial markets, you are switching of your market making efforts as fast as you can ( I suppose you can switch off your facilities in NANO seconds), isn´t it, gentlemen ?
May 6th 😉
interestingly he mentioned markets with very little displayed liquidity are hk, asx and nk… aint those the only markets that LCs trading now?
You mean Liquid Capital a.k.a. the source of pure liquidity???
They confuse a liquidity provider with a Market maker. All mm’s are lp but not all lp are mm. Being a lp does not entail obligations to the exchange so they are free to pull their quotes when the going gets rough. That then begs the question why exchanges and regulators should make things easy for the lp when their “liquidity” is not real and they almost certainly increase volatility and the cost of trading because of so many small fills.
Whereas Market makers have obligations and should stick to them and the exchange should enable this by providing low latency and speed.
In most markets where HFT has been criticised, there are no Market makers ( like the us stock Market). So the question remains why should the exchange provide low latency to liquidity providers who will pull their quotes when liquidity is most needed? The brains at IMc did not shed light on this.
i dont think they are providing latency to particular special bunch, whoever can pay, gets the latency ? fair game.. capital is name of capitalism !
its tiring to hear all the people complaint, if u cant manoeuvre urself around the situation, u shud get the hell out of the game .. its lucrative and bloody competitive .. if u cant keep up, just shut up ..
Or shut down the exchange as thanks to these guys liquidity is next to nil in many once very liquid names. Look at Daimler, once a few thousand stocks on each tick, now a mere shadow of its past liquidity. You get lucky if you can pull 2k shares on the first 3 ticks. Problem is, these guys just try to f**k the guys with real orders.
And if lps are most needed, they go into hiding, i.e. causing the fat finger crisis and then bugger off and leave a mess as they spottet the real big order from a fund and all went bananas. Problem was they were so frigging scared of their own shadow at some point, that they got scared themselves.
These guys try to be proactive. Needless to say, if 80% of the market trys to sniff around, a real good old stampede will go off from time to time as they just see patterns created by their own doings.
where can I trade opal energy?
canadian exchange ?
buy ‘m
Anybody knows how fast the RSS feed updates?
I don’t have a clue how fast it updates