Ever wondered how trades happen in fractions of a second? This video breaks down High-Frequency Trading (HFT), a type of algorithmic trading that uses powerful computers and complex mathematical models to execute millions of orders at lightning speed.
Discover the key features of HFT: incredible #Speed (microseconds!), automated #Algorithms, massive #Volume, ultra-short holding times, and crucial direct market access through #CoLocation. Learn why HFT exists – to profit from tiny price differences via #arbitrage, provide #liquidity, and react instantly to market news. We'll explore core strategies like #MarketMaking, #StatisticalArbitrage, and #EventArbitrage.
We also dive into the controversies surrounding HFT, including accusations of unfair advantage and its role in #MarketVolatility and "flash crashes." Understand the #RegulatoryScrutiny on practices like spoofing and layering. Finally, meet the major players like Jump Trading, Citadel Securities, and Virtu Financial who dominate this high-stakes world.
#hft #quant #algotrading #stockmarket #finance #Programming #computerscience #mit #iit #cryptotrading #AlgorithmicTrading #FinancialMarkets #TradingStrategies #WallStreet #HedgeFunds #PropTrading #FinancialTech #FinTech #MarketMicrostructure #HighSpeedTrading #QuantitativeTrading #TradingAlgorithms #CapitalMarkets #FinancialEducation #TradingExplainers #MarketEfficiency #DarkPools #FlashCrash #RegulatoryCompliance
Discover the key features of HFT: incredible #Speed (microseconds!), automated #Algorithms, massive #Volume, ultra-short holding times, and crucial direct market access through #CoLocation. Learn why HFT exists – to profit from tiny price differences via #arbitrage, provide #liquidity, and react instantly to market news. We'll explore core strategies like #MarketMaking, #StatisticalArbitrage, and #EventArbitrage.
We also dive into the controversies surrounding HFT, including accusations of unfair advantage and its role in #MarketVolatility and "flash crashes." Understand the #RegulatoryScrutiny on practices like spoofing and layering. Finally, meet the major players like Jump Trading, Citadel Securities, and Virtu Financial who dominate this high-stakes world.
#hft #quant #algotrading #stockmarket #finance #Programming #computerscience #mit #iit #cryptotrading #AlgorithmicTrading #FinancialMarkets #TradingStrategies #WallStreet #HedgeFunds #PropTrading #FinancialTech #FinTech #MarketMicrostructure #HighSpeedTrading #QuantitativeTrading #TradingAlgorithms #CapitalMarkets #FinancialEducation #TradingExplainers #MarketEfficiency #DarkPools #FlashCrash #RegulatoryCompliance
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FunTranscript
00:00This is what the stock market was once like.
00:03A large room with monitors on the wall, showing continually changing columns of numbers.
00:08On the floor, a hectic crowd of traders and a babble of voices, from which one repeatedly
00:12heard the shouts, buy and sell.
00:15But this picture has changed.
00:17The room is still there, along with the monitors, but the crowd has become much smaller.
00:22Quietly humming computers have taken their place.
00:25The traders who monitor and control the computers are either sitting at home or in the office.
00:30These computers work much faster, never go on holiday, and rarely require a person to
00:35run them.
00:37These computers are equipped with trading programs, based on mathematical formulas known as algorithms.
00:44Instead of the traders, it is these programs that evaluate stock market rates, and are
00:48able to buy and sell stocks either fully or semi-automatically.
00:53Some of these trading programs only perform simple commands.
00:56For example, when the price of grain falls below a certain value, then buy X number of
01:00grain stocks.
01:02Other programs can follow several commands at once, and are relatively complicated.
01:06But they are nothing compared to custom-built, high-frequency trading computers.
01:10The trading programs installed on these computers can independently pursue complex strategies with
01:16incredible speed.
01:17These programs compete with and battle one another.
01:20To ensure they don't run the risk of losing, they always have to be faster, more flexible,
01:25and more independent.
01:27What was previously traded within days, hours, and minutes is now bought and sold within seconds,
01:32milliseconds, and microseconds.
01:36High-frequency traders only account for a small part of all traders, yet are responsible for
01:41about two-thirds of all stock market transactions.
01:47The high-frequency trader's basic strategy is very simple.
01:50Trade as much and as quickly as possible.
01:53The profit margin on each transaction is frequently quite small, but these small amounts add up to
01:59billions due to mass and velocity.
02:02To make this work, the high-frequency trading programs must always be a split second faster
02:07than the others.
02:08And that's only possible when they are close to the stock market.
02:11The shorter the cable, the faster the information can be transmitted.
02:16It's all about milliseconds.
02:18For example, the buying price of a certain commodity rises minimally.
02:22Since the high-frequency trading programs can process this information before other trading
02:27programs, they have the opportunity to be the first to respond to the price trend.
02:32Before the trend ends, the commodity stocks are sold again at a minimum profit per share.