Aspiring Quant Traders listen up !If you aim to work with an HFT firm, or are still considering whether this is your avenue of interest, this article covers the key high frequency trading firms, and the trading methodology.
High-Frequency Trading relies on algorithms that analyse multiple markets to execute several trade orders at a rapid rate and specific intervals to maximize profits. Since it's about capitalizing on the latency (Tick-To-Trade), or the time that data takes to travel to its destination, within single-digit microsecond or even sub-microsecond level latency (Ultra-High-Frequency Trading) you'll need shrewd quant skills with R, Python, and MATLAB to create sophisticated trading models as a quantitative analyst or model developer.
You'll need to know these 4 types of HFT Orders for interviews:
1. Order flow prediction HFT Strategies: Predicting the orders of large players in advance by various means, and then taking trading positions ahead of them to lock in the profits as a result of subsequent price impact from trades of these large players.
2. Execution HFT Strategies:
These include Volume-Weighted Average Price (VWAP) to execute large orders at a better average price. It is the ratio of the value traded to the total volume traded over a time period; and Time-Weighted Average Price (TWAP) Strategy which is used for buying or selling large blocks of shares without affecting the price.
3. Liquidity Provisioning – Market Making Strategies:
Involves establishing a quote and updating it continuously in response to other order submissions or cancellations (based on the model followed by the HFT firm) to maximize trade profit
4. Automated HFT Arbitrage Strategies: Index arbitrage serves as a good example as the strategy is to capture small profits when a price differential results between two similar instruments. The price movement between the S&P 500 futures and SPY (an ETF that tracks the S&P 500 index) should move in line with each other.
Of course HFT traders will additionally need exceptional problem solving skills and ability to perform under pressure, esp since HFT is used by a wide range of firms including hedge funds, independent proprietary firms that act as market makers. Beyond the likes of Morgan Stanley and Goldman Sachs, HFT firms account for about 60% of the U.S. equity trading volume.
Some of the hotshot market makers include Citadel Securities ($30 billion in assets across multiple investment strategies),Two Sigma (its hedge fund exceeds $50 billion under management), Flow Traders, GTS (accounts for 3–6% of daily cash equities volume in the U.S. and trades over 10,000 different instruments globally), GSA Capital Partners, and Virtu Financial.
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