During the last few Years Moscow counted as major place for HFT funds so in month of June 2015 I decided to go their & meet with top funds , Brokers & Exchange Officials to know more about HFT at Moscow Exchanges as we all know automation and new technologies like HFT & MM have changed the landscape of traditional trading systems. Algorithmic trading using HFT is one of the most widely used computerized automated systems and is very popular among traders and investors. The basic concept of algorithmic trading using HFT is to slice an order in such a manner that its impact on the market will be minimal also by using HFT methods Traders try to get in & out from market in sub Millisecond time.
Using mathematical models and real-time market data, algorithms can determine both the optimum size of the order and its time of submission to the market. This minimizes the impact of the order on the market. The volume of trades using algorithmic trading HFT models has been steadily increasing over the past few years.
The Moscow Exchange estimates HFT to be 45 percent of total trading volume, but expects this figure to rise significantly. Other estimates put HFT at 35 percent of equity volume and 40 percent above of derivatives & Major HFT Volume at Moscow in FX & estimated Volume to be more then 50% in 2014 – 15.
Algorithmic trading systems using HFT are computerized models dealing with nondiscretionary orders without intervention from a human broker-dealer.
Algorithms HFT methods are designed to work discretionary orders within the realities of the market microstructure for securities.
Algorithmic trading HFT systems are particularly well suited for highly liquid securities traded on electronic limit order books. Since trading volume and price-spread vary continuously over time, algorithms can be designed to track a particular price or volume. Thus, a trading order can be executed only within parameters specified by the algorithm to minimize its impact on the overall market.
Some of the facts as HFT fund we must know about Moscow exchange i.e they are well regulated, world class settlement & technology systems Exchange.
According to WFE 2014 – 15 Moscow exchange is worlds no two exchange in Fixed Income asset class Trading, No 5 IN derivatives Trading, No 1 FX HFT Trading & no 14 in Market Capitalization.
Best part Govt. of Russia provide complete support to Moscow exchange & they want Russian exchange to become No 1 In world so in that Direction They Open Window for High Frequency Trading, Market Makers & Foreign Trading Funds at Moscow & its really surprised to know that all most all top HFT Trading Funds from world are active their.
So when I meet with top HFT funds their most of them are at Moscow & St. Petersburg. According to the information we gathered Most Liquid asset classes for HFT players at MICEX are available under Equities, Derivatives & Currency.
In Derivatives Index Futures are played by HFT funds.
IN Currency Futures 90% of HFT Players are active on that space. Most Liquid HFT asset class at Moscow exchange is Fx.
In Equities market, there is a single stock arbitrage b/w London (LSE) and Moscow (MOEX). For a three-way arbitrage, there is also good liquidity in single stock futures (FORTS). There are also various other Strategies those are active here at Moscow Delta One strategies & Arbitrage Strategies but major Arbitrage is in between LSE & MOEX Stocks, EBS London & MOEX FX Spot.
Now comes the Technology part Moscow Exchange Have world class Exchange technology in place & provide Naked DMA access through Exchange Native or FIX API.Also Raw Market data through Exchange API.They have World Class CO Location Data Centre at M1 with world class facilities for HFT Funds & to do Cross Country Arbitrage Moscow is very well connected with World Financial Hub London with all most all Data centres from LD4 to LSE with Lowest possible Leased lines ( 37.1ms Round Trip Via Avelacom Moscow based Low latency Leased line provider).
Moscow exchange also offer Simulation environment by which you can test your strategies & use your own In house developed complete order management & risk management systems.
I meet with top three brokers their all most all broker are FCA regulated & have offices at London. So you can open account with them at London & trade HFT at Moscow. They help you to clear the Govt. KYC & provide necessary Information’s.
Now the costing part to start HFT trading at Moscow exchange. Not so big one time costing is not more then 50K INR + Hardware cost & yearly expense 6 – 7 Lac INR.As per Brokerages is concern it totally depends upon the Volume you create.
2 Replies to “High Frequency Trading & Moscow”
This is not completely accurate. On the HF Spot FX desk at a large US investment bank back in 2005 segueing into other assets. Its not about slicing orders (that is algo trading – vwap, arrival price etc).
We started doing FX triangular arbitrage (eurusd vs gbpusd vs usdjpy vs eurjpy vs gbpjpy etc) on the interbank market and also then offsetting positions between the interbank market vs FXall, Currenex, Banks Platform) and collecting the spread. The strategy does not take any directional risk. It uses speed (high speed) and volume of trades (frequency) to capture tiny aberrations in the market.
This moved to equities – whereby you could arbitrage single names vs ETF’s (perfect replication baskets) to capture the same mis-pricings (latency arbitrage). Then using exchange rules to capture and read order flow (e.g. multiple exchanges trading IBM; you can get higher into the order queue by giving liquidity; by being able to probe orders coming in to see the depth of the order – you can surmise direction and trade). By sending hundreds of thousands of CANCEL/REPLACE messages (i.e. i will trade here if the price is X) in a stock per second – the market can be walked. You take liquidity from one exchange and give it to another and receive a fee (rebate) from the exchange which is a tiny percentage of a cent. But doing this million times a day across thousands of stocks enables you to make serious cash. Other strategies were called SOBI, Dump n’ burn, Hammer, Close_axe – i;m sure you can guess what they do.
Now HF trading is on the wane as everyone has co-location infrastructure (i.e locating models at exchanges so you receive pricing updates milli and now even micro seconds before others). Firms also invest in microwave data (faster) and even hardware models (i.e. building software code into a graphics type card – i.e. hardware) so it operates even faster than software.
HF trading is for huge well capitalized or early mover firms – as a retail investor you will be run over and all they will do is collect commission for free from you. Don’t believe the hype!
You can however design strategies that operate at sub minute intervals to make money. You have to read about market micro structure, order queuing, order placement and submission tactics and game theory. Its fun – but the low hanging fruit have all gone and now its just about who has more cash.
p.s _ I would like to add another generality. Anything that can be arbitraged away in its purest form (i.e. fungible securities, no or minimal leg-in risk) will be done by dealers (its more cost effective in clearing, ticketing costs) compared to a retail investor. I.e. this LSE vs MICEX etc.
If an arbitrage exists – use common sense to posit why? Is it down to education? – i.e. people are unaware, Is it down to cost? (secondary costs in terms of settlement as well as slippage/commissions/hardware costs) Is it down regulation? Finally – are the arbitrages fleeting and in such low volumes where over a week/month/year its not worth the headache (as better relative opportunities lie elsewhere).
Think back to the San Francisco gold rush…. who became really rich per unit risk? The gold prospectors or the guys who set up shops to sell these miners pickaxes, spades, clothes and food whilst creating the hysteria that “there’s gold in them hills!!” This still applies today… now its IT and fast connections. If it were easy to make money in the space with low barriers to entry – they would do it themselves! If it’s too good to be true – it probably is!
Your time and money would be better spent learning how to code, read books on finance, probability and the best teacher of all…. trading! You learn more from your losses than your wins.
Happy trading and enjoy the convention in Bangalore in Sept..