The role of automation in financial trading companies
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Published:
Jan 19, 2020
Keywords:
algorithms, trading, Quant 2.0, automation
Main Article Content
Abstract
High Frequency Trading (HFT) has significantly affected the financial market - how trade is performed, types of employees hired, technology, or even market regulations. There are arguments that important risks arrive from trade automation, especially with the use of ultra-low latency trading systems. It also gives a possibility of achieving (higher) returns more quickly with less residual losses, i.e. algorithms may lead to a lower risk of exposure than traditional ‘human' traders. A higher level of automation in trading companies is a reality, which brings important management issues. The rise in competition between algo-traders has led to the rise of the so-called Quant 2.0: the rebirth of complex algorithms and artificial intelligence to collect, extract and process information available from any source of information. im of this article is, through a literature review, to present the main issues concerning automation in financial trading companies, and how the highly probable introduction of the Blockchain technology may affect HFT and the financial market - either the general market design, or specif- ically, how trading is performed.
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How to Cite
Lenczewski Martins , C. J. . (2020). The role of automation in financial trading companies. Journal of Management and Financial Sciences, (39), 29–42. https://doi.org/10.33119/JMFS.2019.39.3
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Articles
References
Books
1. Aldridge, I. (2009). High-frequency trading: a practical guide to algorithmic strategies and trad- ing systems, Hoboken, New Jersey: John Wiley and Sons.
2. Aldridge, I., Krawciw, S. (2017). Real-Time Risk: What Investors Should Know About FinTech, High-Frequency Trading, and Flash Crashes (1st ed.), Hoboken, New Jersey: Wiley.
Articles and reports
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2. Bullock, N. (2017). NYSE wins approval for ‘speed bump' in trading. FT.com. Retrieved from: https://www.ft.com/content/eed7f77a-3a8a-11e7-821a-6027b8a20f23 [accessed: 19.09.2017].
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7. Idvall, P., Jonsson, C. (2008). Algorithmic trading: hidden Markov models on foreign exchange data. Masters degree, Linkopings Universitet.
8. Kaminska, I. (2017). HFT as an insight into where fintech is going FT.com. Retrieved from: https://ftalphaville.ft.com/2017/03/28/2186482/hft-as-an-insight-into-where-fintech-is-going/ [accessed: 20.09.2017].
9. Sundararajan, A. (2017). The Future of Work. Finance & Development, Vol. 54, No. 2, IMF. Retrieved from: http://www.imf.org/external/pubs/ft/fandd/2017/06/sundararajan.htm
Internet resources
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5. Cantu, M., Reiners, L. (2019). High-Frequency Trading Comes to Cryptocurrency. Retrieved from: thttps://sites.duke.edu/thefinregblog/2019/04/24/high-frequency-trading-comes-to- cryptocurrency/ [accessed: 09.09.2019].
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7. Coinbase (2019). Retrieved from: https://prime.coinbase.com/fees [09.09.2019].
8. Durden, T. (2016). HFTs Lose: IEX Granted Exchange Status as SEC Says The Speed Race Is Over. Zerohedge. Retrieved from: http://www.zerohedge.com/news/2016-06-18/hfts-loseiex-granted-exchange-status-sec-says-speed-race-over [accessed: 19.09.2017].
9. HK.gov (2017). Stamp duty rates. HK.gov. Retrieved from: https://www.gov.hk/en/residents/taxes/stamp/stamp_duty_rates.htm [accessed: 18.09.2017].
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11. Kauffman, R.J., Hu, Y., Ma, D. (2015). Will high-frequency trading practices transform the financial markets in the Asia Pacific Region. Springer, Financial Innovation, No.1, pp.1-27.
12. Martin, W. (2017). A 320-meter tall tower planned by ‘Flash Boys' traders has been rejected by locals. Business Insider. Retrieved from: http://www.businessinsider.com/plans-for-high- frequency-trading-tower-near-dover-rejected-2017-1? IR=T [accessed: 19.09.2017].
13. Melin, M. (2017). AQR: Computers Don't Replace Human Stock Pickers, They Augment Them. Valuewalk. Retrieved from: https://www.valuewalk.com/2017/09/discretionary-managers/ [accessed: 05.10.2017].
14. Rosov, S. (2016). SEC OKs IEX Application; Can “Flash Boys” Hero Improve Market for Inves- tors? Retrieved from: https://blogs.cfainstitute.org/marketintegrity/2016/06/24/sec-oks-iex- application-can-flash-boys-hero-improve-market-for-investors/ [accessed: 19.09.2017].
15. Rosov, S. (2017). What Fintech can learn from decline and reinvention of High-Frequency Trading. Retrieved from: https://blogs.cfainstitute.org/marketintegrity/2017/08/01/what-fintech- can-learn-from-decline-and-reinvention-of-high-frequency-trading/ [accessed: 19.09.2017].
16. Salomon, F. (2011). How High-Frequency Trading is changing Wall Street, npr.org, Retrieved from: http://www.npr.org/2011/01/13/132629284/how-high-frequency-trading-is-changing- wall-street [accessed: 18.09.2017].
17. Sanicola, L. (2017). What is Fintech? HuffPost. Retrieved from: http://www.huffingtonpost. com/entry/what-is-fintech_us_58a20d80e4b0cd37efcfebaa [accessed: 20.09.2017].
18. Zamagna, R. (2019). The future of trading belong to Artificial Intelligence. Retrieved from: https://medium.com/datadriveninvestor/the-future-of-trading-belong-to-artificial-intelligence- a4d5887cb677 [accessed: 11.09.2019].
1. Aldridge, I. (2009). High-frequency trading: a practical guide to algorithmic strategies and trad- ing systems, Hoboken, New Jersey: John Wiley and Sons.
2. Aldridge, I., Krawciw, S. (2017). Real-Time Risk: What Investors Should Know About FinTech, High-Frequency Trading, and Flash Crashes (1st ed.), Hoboken, New Jersey: Wiley.
Articles and reports
1. BIS (2011). High-frequency trading in the foreign exchange market. Retrieved from: www.bis. org [accessed: 15.12.2015].
2. Bullock, N. (2017). NYSE wins approval for ‘speed bump' in trading. FT.com. Retrieved from: https://www.ft.com/content/eed7f77a-3a8a-11e7-821a-6027b8a20f23 [accessed: 19.09.2017].
3. Byrne, J.A. (2016). Upstart IEX exchanges blows with investors over high-frequency trading. NY Post. Retrieved from: http://nypost.com/2016/01/09/upstart-iex-delivers-a-blow-to-high- frequency-trading/ [accessed: 19.09.2017].
4. Chaparro, F. (2017). The fastest traders on Wall Street are in trouble. Business Insider. Retrieved from: http://www.businessinsider.com/the-fastest-traders-on-wall-street-are-in-trouble-2017-8? IR=T [accessed: 20.09.2017].
5. Duhigg, C. (2009, July 23). Stock traders find speed pays, in milliseconds. NY Times. Retrieved from: http://www.nytimes.com/2009/07/24/business/24trading.html?_r=0 [accessed: 24.04.2016].
6. Hudak, M. (2015). High Frequency Trading, International Markets, and Regulation. Dietrich College Senior Honors Program, Carnegie Mellon University.
7. Idvall, P., Jonsson, C. (2008). Algorithmic trading: hidden Markov models on foreign exchange data. Masters degree, Linkopings Universitet.
8. Kaminska, I. (2017). HFT as an insight into where fintech is going FT.com. Retrieved from: https://ftalphaville.ft.com/2017/03/28/2186482/hft-as-an-insight-into-where-fintech-is-going/ [accessed: 20.09.2017].
9. Sundararajan, A. (2017). The Future of Work. Finance & Development, Vol. 54, No. 2, IMF. Retrieved from: http://www.imf.org/external/pubs/ft/fandd/2017/06/sundararajan.htm
Internet resources
1. Anova (2015). The World's First Laser Network for Transporting Equities Market Data Between NASDAQ & BATS/DirectEdge is now Live & Operational. ANOVA. Retrieved from: https:// anova-tech.com/the-worlds-first-laser-network-for-transporting-equities-market-data-between-nasdaq-batsdirectedge-is-now-live-operational/ [accessed: 20.09.2017].
2. Anthony, S. (2016). The secret world of microwave networks. Arstechnica. Retrieved from: https://arstechnica.com/information-technology/2016/11/private-microwave-networks-financial-hft/ [accessed: 05.03.2017].
3. AQR (2017). Systematic versus Discretionary. AQR. Retrieved from: https://www.aqr.com/ library/aqr-publications/alternative-thinking-3q17-systematic-vs-discretionary [accessed: 05.10.2017].
4. Batog, C. (2015). Blockchain: a proposal to reform high frequency trading regulation. Hein-Online, Cardozo Arts & Ent. LJ, Vol. 33, pp. 739-769.
5. Cantu, M., Reiners, L. (2019). High-Frequency Trading Comes to Cryptocurrency. Retrieved from: thttps://sites.duke.edu/thefinregblog/2019/04/24/high-frequency-trading-comes-to- cryptocurrency/ [accessed: 09.09.2019].
6. CHX (2016). CHX SNAP. Chicago Stock Exchange. Retrieved from: http://www.chx.com/snap/ [accessed: 31.03.2017].
7. Coinbase (2019). Retrieved from: https://prime.coinbase.com/fees [09.09.2019].
8. Durden, T. (2016). HFTs Lose: IEX Granted Exchange Status as SEC Says The Speed Race Is Over. Zerohedge. Retrieved from: http://www.zerohedge.com/news/2016-06-18/hfts-loseiex-granted-exchange-status-sec-says-speed-race-over [accessed: 19.09.2017].
9. HK.gov (2017). Stamp duty rates. HK.gov. Retrieved from: https://www.gov.hk/en/residents/taxes/stamp/stamp_duty_rates.htm [accessed: 18.09.2017].
10. Hwang, H. (2016). Artificial Intelligence as the future of quant-trading. Qplum. Retrieved from: https://www.qplum.co/investing-library/92/artificial-intelligence-as-the-future-of-quant- trading [accessed: 07.10.2017].
11. Kauffman, R.J., Hu, Y., Ma, D. (2015). Will high-frequency trading practices transform the financial markets in the Asia Pacific Region. Springer, Financial Innovation, No.1, pp.1-27.
12. Martin, W. (2017). A 320-meter tall tower planned by ‘Flash Boys' traders has been rejected by locals. Business Insider. Retrieved from: http://www.businessinsider.com/plans-for-high- frequency-trading-tower-near-dover-rejected-2017-1? IR=T [accessed: 19.09.2017].
13. Melin, M. (2017). AQR: Computers Don't Replace Human Stock Pickers, They Augment Them. Valuewalk. Retrieved from: https://www.valuewalk.com/2017/09/discretionary-managers/ [accessed: 05.10.2017].
14. Rosov, S. (2016). SEC OKs IEX Application; Can “Flash Boys” Hero Improve Market for Inves- tors? Retrieved from: https://blogs.cfainstitute.org/marketintegrity/2016/06/24/sec-oks-iex- application-can-flash-boys-hero-improve-market-for-investors/ [accessed: 19.09.2017].
15. Rosov, S. (2017). What Fintech can learn from decline and reinvention of High-Frequency Trading. Retrieved from: https://blogs.cfainstitute.org/marketintegrity/2017/08/01/what-fintech- can-learn-from-decline-and-reinvention-of-high-frequency-trading/ [accessed: 19.09.2017].
16. Salomon, F. (2011). How High-Frequency Trading is changing Wall Street, npr.org, Retrieved from: http://www.npr.org/2011/01/13/132629284/how-high-frequency-trading-is-changing- wall-street [accessed: 18.09.2017].
17. Sanicola, L. (2017). What is Fintech? HuffPost. Retrieved from: http://www.huffingtonpost. com/entry/what-is-fintech_us_58a20d80e4b0cd37efcfebaa [accessed: 20.09.2017].
18. Zamagna, R. (2019). The future of trading belong to Artificial Intelligence. Retrieved from: https://medium.com/datadriveninvestor/the-future-of-trading-belong-to-artificial-intelligence- a4d5887cb677 [accessed: 11.09.2019].