an intro to algorithmic trading leshik 2011

[...]... Owain Self, Executive Director, European Algorithmic Trading at UBS, which we found most enlightening and which we feel puts the case of algorithmic trading extremely clearly, and comprehensively Our thanks go to Mr Self and UBS BUILDING AND MAINTAINING AN ALGORITHMIC TRADING TOOL Owain Self Executive Director, European Algorithmic Trading, UBS As the use of algorithmic trading tools has become more widespread,... the important considerations when developing and supporting a credible algorithmic trading tool and what it takes to maintain that credibility in a constantly changing market In the fledgling days of algorithmic trading it was possible to buy or to build a system on a very affordable basis P1: OTA/XYZ P2: ABC c07 JWBK496 /Leshik 26 January 17, 2011 8:1 Printer Name: Yet to Come Introduction to Trading. .. running’ it and generally to minimize market impact cost when we are trying to accumulate a significant position in a particular stock This is done by slicing the P1: OTA/XYZ P2: ABC c06 JWBK496 /Leshik January 28, 2011 22 15:28 Printer Name: Yet to Come Introduction to Trading Algorithms order into many smaller segments and randomizing the order placement Smaller orders hopefully improve the chance of avoiding... OTA/XYZ P2: ABC p01 JWBK496 /Leshik January 17, 2011 7:21 Printer Name: Yet to Come Part I INTRODUCTION TO TRADING ALGORITHMS P1: OTA/XYZ P2: ABC p01 JWBK496 /Leshik January 17, 2011 7:21 Printer Name: Yet to Come P1: OTA/XYZ P2: ABC p01 JWBK496 /Leshik January 17, 2011 7:21 Printer Name: Yet to Come Preface to Part I Fabrizzio hit the SNOOZE he was dreaming he hit the TRADE key and within 15 milliseconds... algorithms The major banks and brokerages have recognized quantitative algorithmic trading as one of their major competitive advantages These firms are all shifting financial and human resources to algorithmic trading In Tier 1 companies the entire process is more complicated as they invariably have to deploy whole teams on a hierarchically P1: OTA/XYZ P2: ABC c04 JWBK496 /Leshik 14 January 17, 2011 7:35 Printer... ‘live,’ to ensure that the algo absolutely does what it is intended to do, and nothing else, under all circumstances and market conditions which it can possibly encounter It can then finally be deployed on the trading desk and carry out the many manmonths of work in a flash, over even thousands of stocks – far beyond the reaction time, concentration ability, and reach of a human trader So the prethought and... breached) The operators of these dark P1: OTA/XYZ P2: ABC c04 JWBK496 /Leshik January 17, 2011 Who Uses and Provides Algos 7:35 Printer Name: Yet to Come 15 venues will have to take rapid and decisive action to avoid the major regulators stepping in There is intense activity to develop suitable algos for the optimal routing, sizing, and order process, how to split up the order and where to allocate it On... c04 JWBK496 /Leshik January 17, 2011 7:35 Printer Name: Yet to Come P1: OTA/XYZ P2: ABC c05 JWBK496 /Leshik January 17, 2011 7:51 Printer Name: Yet to Come 5 Why Have They Become Mainstream so Quickly? Wall Street is usually very quick to latch on to any possible edge which would give them competitive advantage but the cross-industry adoption of algorithmic trading was even more rapid than the usual... recruitment and training of new algo designers is needed They have to be constantly aware of any regulatory and systemic changes that may impact their work A fairly high level of innate intellectual skill and a natural talent for solving algorithmic area problems is a ‘must have’ requirement This is changing the culture of both the Buy side and Sell side companies Many traders are replaced by ‘quants’ and... than on others? A: YES, the efficiency of an algo will also vary over time (continued) P1: OTA/XYZ P2: ABC c02 JWBK496 /Leshik 10 January 17, 2011 7:25 Printer Name: Yet to Come Introduction to Trading Algorithms Q: Can an algorithm go wrong? A: Like all software is heir to, rarely when it is well designed and tested Q: Do I need special computers to run algorithmic trading? A: Depends on the level you are . JWBK496 /Leshik January 17, 2011 7:21 Printer Name: Yet to Come 4 Introduction to Trading Algorithms Algorithmic trading offers many advantages besides the ability to ‘prethink’ a strategy. The human. Yet to Come Acknowledgments Edward Thanks go to Gerry Prosser, Rob Bruce, Ian Kaplan, Dr. Mivart Thomas, Sebastian Thomas, Jason Sharland, Dan Fultz and the late Gillian Ferguson. To dearest Diana go. JWBK496 /Leshik January 17, 2011 7:23 Printer Name: Yet to Come 8 Introduction to Trading Algorithms The origin of what was to become the very first algorithmic trade can be roughly traced back to the