Taming HFT Risks for safe and efficient trading

Taming HFT Risks for safe and efficient trading

17.12.2013 07:00 pm

ARQA Technologies

The attitude towards High Frequency Trading (HFT) has changed for the worse. Its nature is often regarded as inherently irresponsible and potentially disruptive.

I believe that its demonization and the fear of possible dangers of HFT to the markets has been blown way out of proportion. The reason, in my view, lies in the perception of risk management.

There is too much emphasis on the word “risk”. The word sends danger signals paralysing the brain while the “management” part of the phrase is almost neglected. But, let us be rational about dangers provoked by HFT. These arise from the huge numbers of transactions and their high frequency. Thus, risk-management logically means restricting the number of orders and their frequency.

Straightforward methods of reducing risks are usually referred to as “fat finger” checks. The term is inelegant and unpleasant: this somehow matches the attitude to HFT.

But why don’t we recall some positive things associated with HFT? It usually brings in liquidity and improves market efficiency as algorithmic traders use minimal spreads.

They also invest a lot into technological development pushing forward the progress.

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