Algorithmic Trading - Low-latency Trading

Low-latency Trading

HFT is often confused with low-latency trading that uses computers that execute trades within milliseconds, or "with extremely low latency" in the jargon of the trade. Low-latency traders depend on ultra-low latency networks. They profit by providing information, such as competing bids and offers, to their algorithms microseconds faster than their competitors. The revolutionary advance in speed has led to the need for firms to have a real-time, colocated trading platform to benefit from implementing high-frequency strategies. Strategies are constantly altered to reflect the subtle changes in the market as well as to combat the threat of the strategy being reverse engineered by competitors. There is also a very strong pressure to continuously add features or improvements to a particular algorithm, such as client specific modifications and various performance enhancing changes (regarding benchmark trading performance, cost reduction for the trading firm or a range of other implementations). This is due to the evolutionary nature of algorithmic trading strategies – they must be able to adapt and trade intelligently, regardless of market conditions, which involves being flexible enough to withstand a vast array of market scenarios. As a result, a significant proportion of net revenue from firms is spent on the R&D of these autonomous trading systems.