Article You’d Better Know Your High Frequency Trading (HFT) Terminology

T2W Bot

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#1
With the upsurge of investor interest in high-frequency trading (HFT), it is important for industry professionals to come up to speed with HFT terminology. A number of HFT terms have their origins in the computer networking/systems industry, which is to be expected given that HFT is based on incredibly fast computer architecture and state-of-the-art software. We briefly discuss below 10 key HFT terms that we believe are essential to gain an understanding of the subject.
Co-location Locating computers owned by HFT firms and proprietary traders in the same premises where an exchange’s computer servers are housed. This enables HFT firms to access stock prices a split second before the rest of the investing public. Co-location has become a lucrative business for exchanges, which charge HFT firms millions of dollars for the privilege of “low latency access.”
As Michael Lewis explains in his book “Flash Boys,” the huge demand for co-location is a major reason why some stock...
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#2
Very helpful

As a software engineer myself, I find the carefully worded explanations of HFT terms and tactics very enlightening. I have not read the Lewis book, so I come fresh to this article. It is possible, however, that the meaning of the terms and tactics might still escape many readers. I wrote software programs to test the speed and processing accuracy of very large database software. This software is called a Data Warehouse, employed in all large banks, retailers, and manufacturers [and exchanges] to manage and make available all the important data of their businesses. Customers' first priority of these computer/software systems is always speed+accuracy. Software programs written to test "data processing"--the processing of data speeding across the CPU or the little bitty memory chip or the buses [electronic connection lanes between parts on the motherboard] must capture and report on the data's speed in units of a NANOSECOND [1 billionth of a second]. My test programs could report back to the test engineer the time in nanoseconds an action [add number columns] took place. If it took too long, say 15 nanoseconds instead of 8 nanoseconds, the operation could be rewritten to optimize it. After this is done inside the program, the author of this article describes methods to shorten the external path -- or length of the highway -- the data bits travel on. For the test engineer, distance is time added, and that speed is also measured in nanoseconds. There can be an infinite number of slipups along the way. So, I guess, with the author's descriptions of just the mechanical means attempted to optimize the paths [speed] of trading data through computer networks, I have not only become more knowledgeable about HFT setups, but I now feel much less anxious about the effects of it on trading in general. HFT may be good, but as a software engineer myself, I KNOW it can't be perfect.That leaves a LOT of room for the rest of us to PROFIT.
 

Quantt

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944 57
#3
The article is good, the book is a bit bias against the HFTs, I for one think the HFTs are good for the retail trader, because of the liquidity they create and the lowering of the bid/ask spread. For sure the big institution traders are against... The problem for the retail trader are the dark pools (another good book by the same name), because they essentially hide a portion of the market, but the big institutions love them, because they are part of it...