There's typically multiple layers (at different points between tick to an order hitting an exchange) of risk-management/circuit-breakers that prevent these types of things from happening at most shops that know what they're doing. No one wants a repeat of Knight Capital's 2012 meltdown.
I would imagine it may be easy for an unsophisticated/hobby "algo-trader" to make this type of mistake but with over a million in capital, you should probably be a bit more prudent with risk management.
Price discovery means that anyone can find a fair price for some asset. For example, algorithms that provide liquidity in agriculture products ensure that farmers can easily liquidate their inventory, as well as hedging their risk through derivatives.
To think of finance (or more specifically, trading/investing) as well as financial products/derivatives as a zero-sum game is pretty naive.
A simple example to illustrate my point:
Let's say we have a corn farmer whose crops will come in 4 months. He can buy (or sell) futures contracts/options contracts to guarantee that he can sell his corn for today's market price, in case the price of corn goes down. If the price of corn is up in those 4 months, he can let the contract expire worthless. If the price goes up, he loses the $ he paid for the option contract and some trader (whose job it is to take the other side of the position and manage that risk) profits. But, he is happy to have that insurance despite losing money on that "trade". Financial services extend far outside of the financial sector and benefits people broadly.
Though for each individual trade, it might seem like a zero-sum game, the competition between investors and traders allows for efficient capital allocation and risk management outside of the financial sector. Without financial services, everyone would be exposed to unmanageable risk and volatility which is inherently bad for capitalism.
Every day man. I tend to try to work more because I feel weird about being compensated for the work that I do. I guess just keep working hard and challenging yourself every day, and do as much as possible.
I'm an intern right now and these are some things I'm trying to do:
1) Work - we're young right now and don't have too many commitments so why not put in some extra time to excel at your main project and even take up some side projects. It's okay to stay in the office later than most other older engineers.
2) Networking/Side projects - talk to other people in the firms, see what they're working on and offer help if needed. These might be the same people/team that may hire you for full-time one day
3) Learn - Pick at people's brains, I know at my firm most people are willing to take some time to help me. Anything that can be found on stackoverflow or a book just use that but it may help to go over some design/implementation stuff with other more experienced engineers.
4) Software - Learn from the design and testing flows of the company. Try to separate yourself from the way you write software in class or for yourself and understand the way software is developed at a production level, from test-driven development to properly deploying your software.
> If every exchange had a minimum of, say, a minute after an order is submitted until it is executed (during which time it couldn't be amended or cancelled of course) it seems you would greatly reduce the risk of "flash crashes"and unnatural manipulation of the market.
Sorry, but a minute delay is definitely not a solution to your idea of unnatural market manipulation. Artificial delays can be seen in the Chinese equities markets - trading halts given a +/- 10% intraday move, trading halts for up to 10 trading days before news announcements, you can only see quotes every half a second -- all measures to benefit retail traders over institutional traders, a paradigm the American markets inherently oppose. HFTs solve that problem by providing retail investors the same kind of access as institutional investors.
>I know "market liquidity" is an argument for allowing HFT, but haven't hard a good explanation about why the economy would suffer so much if the ultra high frequency trading just wouldn't exist.
HFT is a natural effect of electronic trading in contract to traditional forms of market making and liquidity providing. More often than not, thin spreads are often returned back to retail investors.
Other than some anecdotal evidence of "flash crashes" [1][2], how does HFT negatively impact the market?
The culture doesn't provide an association between cheating and punishment but only academic success and reward.
Anecdotally speaking, a lot of international Chinese students cheat blatantly - i.e. comparing answers with the person beside them at the end of the exam when people are turning in (and often get caught doing so).
I would say that even options/futures/and other products markets are just as hard to market make compared to the equities markets. In my opinion, you need some sort of edge not through hardware but through your model or your market outlook, combined with market-making/hft/statistical-arbitrage in order to be profitable and compete.
1) Capital in the magnitude of >$500k seems reasonable for a small operation
2) Lime Brokerage (a friend has started a hft strategy with a professor on campus and has tested out lime) is okay, I'd look into some other execution services as well
3) Yes you should be backtesting on tick-level data from multiple exchanges ideally. Be wary of lookahead bias and try to build some sort of execution model to account for how your executions might actually be filled and how your orders might affect the market microstructure
Ultimately, I wouldn't rely on pure hft and latency sensitive strategies...latency is always important but you should try to find your edge elsewhere.
Latency arbitrage is pretty much impossible as a newcomer and many firms are getting squeezed out of that particular opportunity. Think Jump, KCG, and Citadel...Jump/KCG both share satellites across the US...read more about the radio dish networks here: https://sniperinmahwah.wordpress.com/2014/09/22/hft-in-my-ba...
FPGAs run the execution of strategy, everything else is done by high level software/systems. FPGAs are connected directly to the exchange and also help receive a feed of market data (in addition to other market data feeds).
I enjoyed this book as well, and it was the text for my computer-architecture class. The authors do a great job explaining the underlying mechanisms of computing hardware clearly and concisely.
Since many auto manufacturing companies doing R&D and Tesla, having already created technologies good enough to bring to market, there will definitely be incentive for taking action. Tesla has already created technologies to run cars that rival (performance) gasoline cars, and access to those technologies/designs will accelerate their own EV efforts.
I would imagine it may be easy for an unsophisticated/hobby "algo-trader" to make this type of mistake but with over a million in capital, you should probably be a bit more prudent with risk management.