While US and European politicians talk about how to curb it, trading based on algorithms is not going away. In fact, it is spreading faster than ever, as emerging markets like Brazil, India , Russia and China, are now catching on to its potential. Ordinary traders are being replaced by coordinators of algorithms. But that’s just half the story.
“If you have the fastest network, you’re the sexiest girl in the class, you’re the top boy. It’s as simple as that.”
As pointed out in earlier post; there is a very clear parallel here to what happened between 2000 and 2005 with the rapid build-up of the more or less unknown market of financial derivatives. Only this time it’s more technical…
In the financial centres of Europe and the US, where the practice began, the people responsible for policing the markets are getting worried about their ability to cope.
But while they talk about how to curb it, trading based on algorithms is not going away. In fact, it is spreading faster than ever, as emerging markets catch on to its potential, BBC News reports.
“The Bric (Brazil, Russia, India and China) countries are where it’s at right now,” says Dr John Bates, executive vice-president and chief technology officer of Progress Software, a company that has pioneered new techniques in what are known as quantitative trading programs.
“We’ve seen it grow very quickly in Brazil. It’s done what happened in London and New York much more quickly. Now we’re seeing the same trend in India and China and even, embryonically, in Russia.”
According to Dr Bates, in the past two to three years, Brazil has already run through a cycle of development that took far longer in London and New York, with algorithm-based trading now available in equities, futures and foreign exchange markets.
Brazil’s Bovespa stock exchange has invested in new technology, boosting the proportion of algorithm-based equity trades from 4% to 12% in the past year.
“The adaptation is faster and they can leapfrog the mistakes that have been made in other places,” he says.
Dr Bates says India is already following suit and will see even more automated trade in the next few years: “The market’s gone very electronic there.”
Indian analysts reckon that as many as a quarter of all trades in the country now involve algorithms, still mainly in equities, whereas up to half of all transactions in Europe and nearly two-thirds of US transactions are estimated to come from high-frequency and algorithmic trading.
Taxing, Limits and Supervision
France is the first of the worlds major economies to impose special taxes on High-frequency Trading (HFT).
And according to head of France’s AMF watchdog, Jean-Pierre Jouyet, the French are also considering speed limits and some kind of supervision.
As Dr. Bates told the Asian Financial Forum in Hong Kong in January:
“As there is a rush towards reducing transaction time in the name of high-frequency trading, the question we need to ask is what purpose are we serving by reducing trading time to eight microseconds or even two microseconds. Is this justified?”.
Well, I guess that depends on who you ask?
The Sexiest Girl
It is kinda obvious that the financial industry would not be upgrading its technology by 90 billion dollar this year if they didn’t think it was worth it.
“If you have the fastest network, you’re the sexiest girl in the class, you’re the top boy,” says Fraser Bell, managing director of BSO Network Solutions. “It’s as simple as that.”
BSO operates its own international network covering the UK, the US and 16 other countries, including the main European financial markets, Hong Kong, Singapore, Brazil and Russia.
It prides itself on being able to send data from London to Hong Kong and back in just 174 milliseconds.
“There’s a massive global drive for speed,” says Mr Bell, who sees himself as locked in a “race to zero” with rival network operators.
Related by econoTwist’s:
- French Senate Start Taxing High-Frequency Trading In January
- Financial Industry To Spend $90 Billion on New Technology
- Hey, You HFT Bashers! Are You Ready For This?
- “Artificial Intelligence” To Be Implemented In HFT
- The Ultimate Trading Weapon
- Derivative Trading Just Keeps Getting Bigger
- UK And France Want Ban On High Frequency Trading
- Regulations May Increase Risk of Flash Crash, Traders Says
- Will Supervising Hedge Funds Put An End To Systemic Risk?
- Here’s The Best Place For High Frequency Trading
- Survey; High Frequency Trading Makes Markets More Efficient
- Understanding High Frequency Trading
- Here’s The Official Flash Crash Report; Scapegoat Found
- Living In A Derivative World
Other related article;
- CFTC to Review High-Frequency Trading (ibtimes.com)
- The Essential High Frequency Trading Software on Experts Workshop DVD (your-story.org)
- Understanding Female Talent in Emerging BRIC Markets (blogs.hbr.org)
- Coming to the Largest City in South America: The Speed Traders Workshop 2012 Sao Paulo, February 1st (your-story.org)