Man vs. Machine What is Auto-Trading?

AttentionManipulation

“Goldman had engineered every major market

manipulation since the Great Depression - and they’re about

to do it again” Rolling Stone, May 2009

May 2009 a former computer programmer at their Wall Street headquarters had been charged with using sensitive computer codes to steal trade secrets. The codes are core to Goldmans' algorithmic trading systems.

The bank's lawyer made the statement that this “raised the possibility that there is a danger that somebody who knew how to use this program could use it to manipulate markets in unfair ways.”

“A computer-implemented system and method for executing trades of financial securities according to a combination passive/aggressive trading strategy that reliably executes trades of lists of securities or blocks of a single security within a desired time frame while taking advantage of dynamic market movement to realize price improvement for the trade within the desired time frame. A passive trading agent executes trades at advantageous prices by floating portions of the order at the bid or ask to maximize exposure to the inside market and attract market orders. An aggressive agent opportunistically takes liquidity as it arises, setting discretionary prices in accordance with historical trading data of the specified security.”

FACTS 26% EXECUTED

BY NYSE

Exchange that doesn't have to report WHO is trading and HOW MUCH they are trading

10 PUBLIC EXCHANGES

30 Dark Pools

200+ internalising broker-dealers

Is this BAD News for us?

Traders will lose their account within 1 year

Of People will be profitable by

themselves

95% 5%<

The Likely Conclusion for the Majority

YOU are the problem★ YOU are holding you back

Remove YOU as the problem

★ YOU always will be★ The industry is against you

★ YOU shouldn't be doing the trading

How it WorksInvestors connect their computers to trading systems known as electronic communication networks (ECN).

!

‣ Electronic Broking Systems

‣ Multi-bank Trading system

‣ Single bank Trading systems

Once connected, a computer algorithm monitors price quotes from different ECNs and places orders - all without immediate manual interaction.

TERMS Algorithmic

Black Box

Program

Robot

QuantitativeHFT

WHAT AN ALGORITHM DOES

TELLS the trader EXACLY when to enter a position

TELLS the TRADER how much to buy or sell

TELLS the TRADER whether to sell short or buy long

TELLS the TRADER when to exit the position

?

Auto-HedgingA formula automatically

generates hedging orders for managing risk levels

dynamically.

Statistical TradingOrders are generated according to algorithms designed around

macro portfolio models or differentials to relative values.

Liquidity Access

Trading solutions are designed to improve access to multiple trading venues.

Algorithmic Execution

Trading styles are automated to keep execution controlled and

running smoothly.

1 2

3 4

Auto-HedgingA formula automatically

generates hedging orders for managing risk levels

dynamically.

Statistical TradingOrders are generated according to algorithms designed around

macro portfolio models or differentials to relative values.

Liquidity Access

Trading solutions are designed to improve access to multiple trading venues.

Algorithmic Execution

Trading styles are automated to keep execution controlled and

running smoothly.

Four Categories of Algorithmic Trading

Others High - Frequency TradingInstitutional Hedge FoundRetail

Prevalence

1%

56%

17%15%

11%

%

%

%

%

‣ Optimisation‣ Robustness

TESTING

SystemsInfrastructureDataMarkets

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