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Tristan de Gouvion Saint Cyr

Algorithmic and HFT (High Frequency

Trading)

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HFT

Tristan de Gouvion Saint Cyr talks about an

investment trend in today's markets: HFT.

The post-2008 market condition saw a drastic

increase in volatility which lead to challenge

market players, and find new solutions to

benefit from this new environment

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Tristan de Gouvion Saint Cyr on HFT

Tristan de Gouvion Saint Cyr quotesWikipedia: "Algorithmic trading, alsocalled automated trading, black-box trading,

or algo trading, is the use of electronicplatforms for entering trading orders withan algorithm which executes pre-programmedtrading instructions whose variables may

include timing, price, or quantity of the order,or in many cases initiating the order withouthuman intervention.

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Tristan de Gouvion Saint Cyr on HFT

Algorithmic trading is widely used by investmentbanks, pension funds, mutual funds, and other buy-side (investor-driven) institutional traders, to dividelarge trades into several smaller trades to

manage market impact and risk. Sell side traders, suchas market makers and some hedge funds,provide liquidity to the market, generating andexecuting orders automatically.

A special class of algorithmic trading is "high-frequencytrading" (HFT). Many types of algorithmic orautomated trading activities can be described as HFT.

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Tristan de Gouvion Saint Cyr on HFT

As a result, in February 2012, the Commodity FuturesTrading Commission (CFTC) formed a special working groupthat included academics and industry experts to advise theCFTC on how best to define HFT. HFT strategies utilizecomputers that make elaborate decisions to initiate ordersbased on information that is received electronically, beforehuman traders are capable of processing the informationthey observe. Algorithmic trading and HFT have resulted ina dramatic change of the market microstructure,particularly in the way liquidity is provided. Algorithmic

trading may be used in any investment strategy,including market making, inter-market spreading, arbitrage,or pure speculation (including trend following).

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Tristan de Gouvion Saint Cyr on HFT

The investment decision and implementation may be augmented atany stage with algorithmic support or may operate completelyautomatically.

A third of all European Union and United States stock trades in 2006were driven by automatic programs, or algorithms, according to

Boston-based financial services industry research and consultingfirm Aite Group. As of 2009, studies suggested HFT firms accountedfor 60-73% of all US equity trading volume, with that number fallingto approximately 50% in 2012.

One of the main issues regarding HFT is the difficulty in determininghow profitable it is. A report released in August 2009 by the TABB

Group, a financial services industry research firm, estimated thatthe 300 securities firms and hedge funds that specialize in this typeof trading took in roughly US$21 billion in profits in 2008.