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New Quant book research paper on the Flash Crash using HFT in Forex

(Last Updated On: June 21, 2012)

New Quant book research paper on the Flash Crash using HFT in Forex

“VPIN and the Flash Crash: A Comment”

http://ssrn.com/abstract=2062450

papers.ssrn.com

Recently Andersen and Bondarenko posted a paper on SSRN with the title “VPIN and the Flash Crash” which is essentially a comment on our earlier work on the…

 

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, I appreciate your paper. I have also hypothesized and modeled signals for an unbalanced market microstructure seen as an interaction of shorter-term and longer-term participants, but my methodology is different.

Your model is insightful since it uses an innovative (for me) method to differentiate, from trade volumes, informed position-takers from high-frequency, direction-agnostic market makers.

I also appreciate the motivation behind publication of this paper. As a HF setup, nobody really wants to see exceptionally high volatilty in HF domain.

I will really appreciate if you could clear two of my remaining doubts.

1. you have put a number on HF trading volume as a percentage of total volume in S & P Futures. Can you also hazard a rough, approximate estimate or even a guess on how much of the HF activity is implicit market-making vis-a-vis other strategies.

2. Any rough ideas on how much of trading volumes in G10 Forex is HF. I am not expecting a number, but is the activity comparable or more or less than S & P Futures?

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please define what you consider to be HFT.

I have talked to some people in FX that consider anyone connecting in via FIX (instead of using some web interface) as HF. Seems kind of silly, but it seems each person has a different definition.

With FX, everything kind of gets tricky. I don’t even think anyone can precisely tell you how much volume was traded in G10 today, let alone what % of it was HFT.

 

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thank you for your comment. On your first question, according to studies by TABB, a majority of HF activity seems related to tactical liquidity provision. On your second question, the FX market is controlled by brokers, who monitor trading activity. High frequency strategies can be kick out from their pool, as soon as the banks acting as counterparts determine that it is unprofitable to trade with them. I hope this helps. Best wishes, Marcos.

 

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i think of HFT as mainly but hardly limited to micro-structure related system trading.

Speed, large number of bets, mean-reversion strategies, order-book driven algos, volumes, forced-fills, all functional knowledge related to conventional market-making is at heart of it.

However these strategies might be inching towards the fringe and directional betting on shorter time-scales are becoming more important. How do you think of HFT?

 

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Here is a paper discussing the impact of HFT in FX markets: http://www.federalreserve.gov/pubs/ifdp/2009/980/ifdp980.pdf

 

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