The secrets of high-frequency trading revealed!
“Edgar’s book is fantastic . . . I recommend it highly.”
Bart Chilton, Commissioner, United States Commodity Futures Trading Commission (CFTC)
“I have interviewed the most successful high-frequency traders in New York and Chicago, but I have learned so much more by reading Perez’s book. He covers the most relevant topics we need to know today and tomorrow.”
Mark Abeshouse, Chairman, Augustus Capital
“Alternating between an annotated timeline of the development of high-frequency trading and interviews with top high-frequency traders, Perez illuminates the world of speed. All in all, an enlightening book.”
Brenda Jubin, contributor to Seeking Alpha
“This is a comprehensive and compelling summary of the trading industry in general, as well as high-frequency trading. If you are interested in this field or of knowing a critical component of all future marketsread this book.”
Paul Dowding, Managing Director, Meridian Equity Partners
“Very timely, covers the 2010 Flash Crash and the current high-frequency trading environment.”
Patrick Sweeney, Vice President, JP Morgan Chase
“There is a new day in trading and speed is the key. Edgar Perez is the poster child.”
Eugene Steele, Managing Partner, Trading Rooms World Wide
About the Book:
High-frequency traders have been called many thingsfrom masters of the universe and market pioneers to exploiters, computer geeks, and even predators. Everyone in the business of investing has an opinion of speed traders, but how many really understand how they operate? The shadow people of the investing world, today’s high-frequency traders have decidedly kept a low profileuntil now.
In The Speed Traders, Edgar Perez, founder of the prestigious business networking community Golden Networking, opens the door to the secretive world of high-frequency trading (HFT). Inside, prominent figures of HFT drop their guard and speak with unprecedented candidness about their trade.
Perez begins with an overview of computerized trading, which formally began on February 8, 1971, when NASDAQ launched the world’s first electronic market with 2,500 over-the-counter stocks and which has evolved into the present-day practice of making multiple trades in a matter of microseconds. He then picks the brains of today’s top players. Manoj Narang (Tradeworx), Peter van Kleef (Lakeview Arbitrage), and Aaron Lebovitz (Infinium Capital Management) are just a few of the luminaries who decided to break their silence and speak openly to Perez. Virtually all of the expertise available from the world of speed trading is packed into these pages.
You’ll get insight from HFT’s most influential trailblazers on the important issues, including:
- The basics of launching an HFT platform
- The important role speed traders play in providing market liquidity
- The real story behind the “flash crash” of May 2010
- Emerging global HFT markets
- M&A and consolidation among the world’s biggest exchanges
The Speed Traders is the most comprehensive, revealing work available on the most important development in trading in generations. High-frequency trading will no doubt play an ever larger role as computer technology advances and the global exchanges embrace fast electronic access.
Essential reading for regulators and investors alike, The Speed Traders explains everything there is to know about how today’s high-frequency traders make millionsone cent at a time.
|Publisher:||McGraw-Hill Professional Publishing|
|Product dimensions:||6.10(w) x 9.10(h) x 1.10(d)|
About the Author
Edgar Perez is a former McKinsey & Company consultant, chief operating officer of UltraHF Capital, a hedge fund running highfrequency trading strategies, and founder of Golden Networking, a premier networking community for business executives, entrepreneurs, and investors. He holds a Masters in Business Administration from Columbia Business School where he was elected to the Beta Gamma Sigma honor society. He is widely regarded as the preeminent networker in the high-frequency trading and alternative investments worlds, as host of the popular monthly High-Frequency Trading Happy Hour business receptions in New York City, which were featured in The Wall Street Journal and Los Angeles Times. Perez was also a presenter at the Harvard Business School Venture Capital and Private Equity Conference. He resides in the New York City area.
Read an Excerpt
THE SPEED TRADERS
AN INSIDER'S LOOK AT THE NEW HIGH-FREQUENCY PHENOMENON THAT IS TRANSFORMING THE INVESTING WORLD
By Edgar Perez
The McGraw-Hill Companies, Inc.Copyright © 2011The McGraw-Hill Companies, Inc.
All rights reserved.
The Emergence of High-Frequency Trading
While high-frequency trading has gained relevance with the general public only recently, the practice of using computerized trading has been active for decades, going as far back as 1971, when Nasdaq started as the world's first electronic market.
In the Beginning, 1969–1976
Traditionally, financial markets were physical locations where brokers with buying and selling orders met and matched them appropriately. The technological evolution and, consequentially, the exponential growth of computing power brought a revolution to the financial markets, making it unnecessary for brokers to meet physically and enabling traders from remote locations to participate. The now Nomura-owned Instinet led the charge more than three decades ago.
February 24, 1969
On this day, Institutional Networks Corp. filed a patent application for its "Instinet Communication System for Effectuating the Sale or Exchange of Fungible Properties Between Subscribers." The company, founded two years before, aimed to compete with the New York Stock Exchange by means of computer links between banks, mutual funds, and insurance companies, with no delays or intervening specialists. Through this Instinet system, which would start operating by 1970, the company would provide computer services and a communications network for the automated buying and selling of equity securities on an anonymous, confidential basis. It also acted as a securities information processor, supplying professional-level market data systems containing last sale, quote, and size information. Institutional Networks received income from commissions on the trades and from the rental of the Instinet terminals located in the offices of its clients. Institutional Networks was renamed Instinet in 1985.
February 8, 1971
This was the first trading day at the Nasdaq, an electronic alternative to over- the-counter stock exchanges. Nasdaq opened electronically with 2,500 over-the-counter stocks. It was not until the 1990s that the Nasdaq became a competitor of the New York Stock Exchange (NYSE); Nasdaq merged with the American Stock Exchange (AMEX) in 1998.
May 1, 1975
On this date, the Securities and Exchange Commission (SEC) banned fixed minimum commission rates, a cornerstone of the U.S. securities markets and all other organized exchanges throughout the world. "Until then, the NYSE fixed the minimum commission of stock trading; these extraordinary high costs had hindered quantitative traders from entering the equity markets," according to author Lars Kestner.
March 1, 1976
The fully automated Designated Order Turnaround (DOT) system was introduced on this day by the NYSE to route smaller orders electronically. The orders attended by a stock exchange agency would be sent electronically to the computers inside the market, allowing the stock exchange agencies to confirm the execution of some operations while still having the client on the telephone line, significant progress for the time.
The DOT system involved the use of computer technology to relay orders. With a network interface, it was possible for investors to submit orders that were immediately logged in the servers for the exchange. The orders could be executed and confirmation of the execution relayed to the investor in what was then considered real time. This type of real-time investment capability made it possible for investors to benefit by having an order executed immediately rather than 10 minutes or an hour later. The DOT system was able to handle such transactions as limit orders, basket trades, and several other types of market orders.
The Lead-up to Black Monday, 1982–1987
There were many voices eventually blaming the market collapse on electronic trading. The "flash crash" of 2010? No, Black Monday in 1987. That's right—even back then, startups and banks, which were just getting started in the electronic trading race, were pointed as the culprits of the dramatic decline in the financial markets. The story would repeat itself 23 years later.
July 5, 1984
On this date, the NYSE approved the use of a version of the Super-DOT system for options trading. Super-DOT was an improvement over the DOT system and guaranteed that any market order of less than 2,100 shares of a stock would be executed within three minutes at the prevailing bid price (for a market sell order) or asked price (for a market buy order) at the time the order was entered or at better prices, if possible. The DOT-for-Options system provided the NYSE options floor with an electronic order-routing system not available on any other options exchange. The Super-DOT system, which included the NYSE's DOT, Opening Automated Report Service (OARS), and Limit Order (LMT), had been used to provide automated trading support to the NYSE equities trading floor since 1976.
October 19, 1987
After five days of intensifying stock market declines, selling pressure hit a peak on this day, Black Monday. The Dow Jones Industrial Average (DJIA) fell a record 22 percent, with many stocks halted during the day because order imbalances prevented true price discovery. The lead-up to October 1987 had seen the DJIA more than triple in five years, and price/earnings (P/E) multiples on stocks had reached above 20, implying very bullish sentiment. And while the crash began as a U.S. phenomenon, it quickly affected stock markets around the globe; 19 of the 20 largest markets in the world saw stock market declines of 20 percent or more.
Floor traders, working by telephone, dominated the action, and computer-generated trading still was in its infancy; certainly, dark pools and high-frequency trading were the stuff of science fiction, said the Wall Street Journal. Nevertheless, that didn't stop people from speculating on the exact causes of the crash (which was rare in that the market made up most of its losses rather quickly rather than falling into a protracted economic recession) and pointing to automatic trading programs in place at the time as possible culprit. An important parallel, though, was how a number of traders abandoned the market; in 1987, some human market makers on the floor of the exchange stopped providing bids for certain stocks; more than two decades later, in a market dominated by technology, high-speed traders, who often provide liquidity for the market, just switched off their computers for very important reasons that will be detailed in Chapter 9.
Technology Improves, 1994–2001
Upstarts and established players jockeyed for positions at the end of the 1990s to advance their standing as the SEC readied itself to approve Regulation ATS, the regulation of alternative trading systems, an area now dominated by BATS (Better Alternative Trading System) and Direct Edge.
August 1, 1994
On this date, Banque Nationale de Paris (BNP) announced that it would purchase most of the operations of Cooper Neff, a Philadelphia-based options trading firm with a reported $400 million in capital, to provide a broader array of financial products to its corporate and institutional clients worldwide. The acquisition would include all of Cooper Neff's technology and research capabilities, as well as most of its trading operations.
Richard Cooper, founding partner of Cooper Neff, expected the buyout would push his firm "into the direct OTC [over-the-counter] customer market" using BNP's clients in Europe and Asia. Before, Cooper Neff's 100-plus traders made markets in exchange-traded options
Excerpted from THE SPEED TRADERS by Edgar Perez. Copyright © 2011 by The McGraw-Hill Companies, Inc.. Excerpted by permission of The McGraw-Hill Companies, Inc..
All rights reserved. No part of this excerpt may be reproduced or reprinted without permission in writing from the publisher.
Excerpts are provided by Dial-A-Book Inc. solely for the personal use of visitors to this web site.
Table of ContentsChapter 1. Manoj Narang (Tradeworxs);
Chapter 2. Stuart Theakston (GLC Ltd.);
Chapter 3. Mark Holt (BlueCrest Capital);
Chapter 4. Aaron Lebovitz (Infinium Capital Management);
Chapter 5. Richard Flom, Systematic Alpha Management's Head Trader;
Chapter 6. Aaron Lebovitz, Infinium Capital Management's Managing Director;
Chapter 7. Peter Van Kleef, Lakeview Arbitrage's CEO;
Chapter 8. Francois Magny (Starmark Proprietary Trading Ltd.)
Most Helpful Customer Reviews
The Speed Traders is a great introduction to the high-frequency trading industry. I first opened the book with a vague understanding of what HFT truly entailed. What I acquired after reading The Speed Traders was much more than I initially anticipated. Through a series of interviews with HFT gurus and expert commentary from the author, this book reveals the very essence of speed trading in a beguiling approach by covering key market events, throughout its development in the global financial industry. One definitely gains a proper understanding of high-frequency trading, and the correlation of information and importance of every millisecond to have economies of scale over the trading process. The Speed Traders is a great investment in enhancing one’s knowledge in the financial technology industry in a simplified and enjoyable manner.
One of the least explained areas of finance is high frequency trading and Edgar Perez’s book, The Speed Traders, gives an extensive overview of this topic. The insightful descriptions of the daily activities of the market and their role in the lives of securities dealers allow it to reveal the methods that traders use. The book utilizes interviews with recognized industry professionals and a timeline of the evolution of speed trading to provide the reader with a great idea on what speed trading is and how to use it. One of the major focusing points of the book are the modern applications of speed trading. These applications are not only explained through examples and interviews but also in a clear way that excludes confusing industry jargon and paints a clear picture of the topic at hand. The Speed Traders by Edgar Perez, a global speaker on the topic, is a clear and informative read that can be useful to both seasoned industry professionals and those who are only exploring the financial industry.
I gladly read this book in my leisure time. It was so interesting that I could grab it before I hit to pillows, and also when I was using public transportation. I sometimes followed the original order of chapters, but I also skipped to topics that I really wanted to read. For readers, it depends on what you are looking for. No matter which way, there is a lot for everybody to learn by reading The Speed Traders. I think this book can be quite useful for students and outsiders who want to know what is happening in the high frequency trading world. Many thoughtful remarks from practitioners were quoted in this book. Those timely quotes work towards predicting the future of high frequency trading (HFT). So if you want to work in this industry or do some business with HFT, this book can be a perfect tour guide, showing you the current landscape of HFT. The best part of this book is the great amount of information about HFT coming directly from fund managers, chief executives, quants and academics. They all have unique views about HFT that are insightful for outsiders. They are indeed working with these new technologies and creating financial magic to maximize their P&Ls. When you read what they are saying, it feels like you are directly talking to them. For people that are usually dealing with computers and numbers, that is an easy way to know the world beyond their cubicles. The Speed Traders is a great value for the money you will spend. So worthwhile that The Speed Traders went beyond my expectations. I hope this review helps you in picking this title, arguably the best book on the topic out there.
The Speed Traders, by Edgar Perez, touches up on many aspects of high frequency trading. There are obviously various different books that touch upon high frequency trading but The Speed Traders provides the most efficient information on HFT. The entire book solely discusses HFT and does not stray from the topic. Mr. Perez seems to have an abundant knowledge on high frequency trading and it clearly shows throughout his book. High frequency trading is a difficult concept to grasp and a difficult concept to put in a book. Mr. Perez utilized numerous real situations through interviews with industry experts. The Speed Traders has many timelines of key markets and also discusses how HFT was introduced. Mainly the interviews were what grasped many readers. Mr. Perez’s book provides so much insight on HFT. With this book readers will not only gain more knowledge of high frequency trading but opens up a new perspective to the business world. The Speed Traders will definitely be a book worth reading for those interested in high frequency trading. This book will bring about terrific knowledge combining with actual events to gain a broader perspective on high frequency trading.
The Speed Traders, by Edgar Perez, is an enlightening work on high frequency trading. Although there are many high frequency trading books available on the market today, The Speed Traders is distinctive in that it does not stray from its discussion of HFT into other areas of finance. Perez’s work has a laser-like focus on the high frequency trading industry and the structure of the book is well conceived. The true challenge of discussing high frequency trading is to engage the reader without losing him/her in a glut of technical jargon. By providing HFT information in the form of interviews with industry experts, Perez has mastered this challenge. The Speed Traders introduces the reader to high frequency trading by discussing its evolution, including a timeline of key market events that have helped to shape the landscape of today’s global financial markets. The true strength of The Speed Traders lies in the interview content. Perez’s access to HFT practitioners is truly unique and provides for a candid look at the high frequency trading industry. By introducing the reader to members of the high frequency trading community, The Speed Traders succeeds not only in providing valuable insight, but also injects a human element that is easily overlooked in discussions about HFT. Those looking for a substantive, entertaining book about high frequency trading will not be disappointed by The Speed Traders. The book’s balance of technical knowledge and practitioner anecdotes combine to make it a truly worthwhile read.
Most Comprehensive Book on the Subject Matter Edgar Perez’s new book is a must read for anyone eager to learn more about the complex world of high frequency trading. “The Speed Traders” sheds light through the author’s expert analysis of the subject matter as well as through his interviews of traders in the industry. The book provides a timeline of when HFT emerged, where it is now and the likely direction it will take in the future. His in depth analysis of the flash crash is one of my favorite parts because previously, I did not really understand the in depth logistics of what actually happened. I really like how Mr. Perez provides stimulating contrast by alternating between major events in the HFT world and interviews with involved traders in the industry. The six interviews really provide the some of the most interesting material because you really get an inside look of the industry in a manner otherwise not possible. It is refreshing to see an expert finally write about this subject in a comprehensive manner. This book delivers information that similar books cannot match. A great read for novices and the informed, alike.
I have read several books about trading in general and high-frequency trading in particular, but this one really stands out with its quality. An informative book that provides readers with thorough understanding of high-frequency trading, which will help not only new analysts but also experienced professionals to use sophisticated tools to trade more effectively. A "must" for people who pursue a career in finance.
As an accounting student, I thought that high-frequency trading, a topic in vogue in the financial world, would be difficult for me to understand. But after reading "The Speed Traders: An Insider’s Look at the New High-Frequency Phenomenon That Is Transforming the Investing World" (McGraw-Hill, 2011), authored by Edgar Perez, I was able to grasp the concepts behind it, since the book explain this technique in understandable words. In this book, Edgar Perez illustrates what high-frequency trading is--- using computer programs based on the mathematic models to detect and trade millions of stocks in microseconds. Nowadays, people hold different concepts of high-frequency trading. Does that matter? Yes, because how we define high-frequency trading will determine what financial regulators will come up with in order to keep markets fair for all participants. Besides the clear illustration of the concept, Edgar Perez introduces several practitioners who explain how high-frequency trading works in practice. As a foreign student in the U.S., knowing that high frequency trading is quite popular around the Western world and still on its beginning stages in China is pretty inspiring to explore this further. I do think now this is a MUST read book for those who are interested in the financial markets, trading and investing, especially for expert human traders who can make the most from these techniques.
The Speed Traders is a book written with the intention to educate. Whether you've only heard of High-Frequency Trading because you've heard how it could mess up the market, or you work for a High-Frequency Trading firm yourself, you will still gain important insights from this book. I happened to belong to the first category, and if you are too--and I suspect that most of you reading this review-- are, you will be reading clear, detailed explanations of the phenomenon that the news and the media did not do a good enough job of explaining. On CNN two years ago, we heard about the speculation that Speed Traders were behind the Flash Crash and were imbued with fear of how technology could threaten the returns of our portfolios. What we didn't hear was the background story and more importantly, how the culprit of the Crash was ultimately judged to be a hedge fund that had nothing to do with Speed Traders. This book elucidates this event. Reading this book, I felt that the picture that the media had painted of the "card counting" of the stock market had changed. Speed Trading is completely independent of "Buffetian" long term strategies. They operate on completely different time frames and have very little effect on the profits long term portfolios will yield. I became excited to learn about a stock market that exists in parallel, but virtually independent of the one we are used to hearing about. Now, what if I was someone who worked in a Speed Trading firm? Well I'm not, but I think a key message of the book is that the future of High Frequency Trading is not simply just advancing the algorithms to continue gaining an advantage over your competitors--its also to spread awareness of what HFT really is-- to change the public opinion painted by the media. Working in HFT all day, you probably have a pretty good idea of how the algorithms cold be improved someday, but the second goal is much harder to achieve. For someone who is constantly immersed in the field, it could be refreshing to take a step back and be reminded what the industry as a whole is striving to achieve. The intellectually curious side of me is enthralled by the magical, bordering-on-science-fictional influence that high-paced technology has had on the market. To be honest, if I was still a young finance major, Perez' book would inspire me to look into some of those grueling computer science courses just to see if I have the chops myself.
As a high technical trading strategy, high frequency trading has become more and more important. The Speed Traders by Edgar Perez is a great book focused on the topic at hand. After months of thinking and interviewing top high frequency traders, Edgar Perez delivers a volume that can entertain with its anecdotes and enlighten with its insights. The Speed Traders provides readers with a view of the evolution of high frequency trading through its most important milestones. Edgar Perez interviewed six experienced practitioners and a number of experts in-depth on lots of topics including their educational background, their introduction to the financial world, their initial involvement with high-frequency trading, and how they are succeeding in today's financial markets. Also, The Speed Traders points out how profitable high frequency trading relies on smart application of groundbreaking technologies and investment strategies; there is no other way it could have reached more than 50% share in equities trading in America. High frequency trading is now very popular on the Western world. As a Chinese living in the U.S., I am pretty intrigued about the development of high-frequency trading in my own country. The Speed Traders gives me an outline of this mysterious world, and, as a finance background person, I would like to apply the concepts learned from The Speed Traders into my future work. Once thing is certain, this book will not disappoint all those interested in trading and investing.
This is the 1st book I ever read about trading, and in particular high-frequency trading and I know that I was just lucky to have chosen the best book about HFT so far. The book drew a big picture of high-frequency trading, and what particularly makes this book stand out were the interviews with chief executives, fund managers and other well-known professionals in this industry. These people told the inside stories that can not be found anywhere else, and their insights are definitely very useful to outsiders who want to know more about HFT. I could not take my eyes off and I finished the book in less than 2 days!!! Normally, I can never read a nonfiction book that fast. It is very VERY easy to digest and it is very well-written. The author, Mr. Edgar Perez, had been interviews so many times in different television channels and he is definitely my favorite author. As a college student, I find it to be perfect to learn more about HFT. It is very enlightening, very distinctive and well conceived.
The Speed Traders, by Edgar Perez, is a terrific book for those who are interested in trading, investing or finance. Its focus on high-frequency trading, a somewhat esoteric field in investing, distinguishes it from recent finance bestsellers. Mr. Perez uses two methods in his book; first, he shares his knowledge and expertise in high-frequency trading field to readers by analyzing key themes that have defined this industry; secondly, he leverages real world trading experience in his book through the interview method. For example, M3 Capital founder John Netto, speed trader Aaron Lebovitz from Infinium Capital, speed trader Manoj Narang from Tradeworx, and many other. The book also talks about market structure and technologies people use in the High-Frequency trading world. I didn’t even know about high-frequency trading before I started reading this book. Reading Perez’s book gave me a clear and broad picture about the industry and where is headed. Therefore, I highly recommend this book for both novice and expert readers.
The Speed Trader’s, written by Edgar Perez, offers cutting-edge intelligence on the relatively concealed industry of High-Frequency-Trading. The substantial foundation of HFT is laid out and combined with thorough interviews to make sense of the complicated technicalities in HFT. Perez gives the whole picture by critically defining HFT, charting its inconspicuous emanation into the securities market, breaking down the flash crash of 2010, forecasting the indisputable role that HFT will play in the financial world, and perhaps most importantly, walking the reader through 6 different evaluations with actual high frequency traders. The interviews were the most valuable asset in making this industry understandable. The first person narrative is key because it’s easy to comprehend and relatively scarce in current literature for many reasons, two of which are that traders are reluctant to disclose strategies on generating alpha and the barriers of entry to the HFT industry are so high that there is only a limited amount of traders that actually know what they are talking about. Readers searching for break-through information on HFT have met their match because The Speed Trader is in a class of its own. Its exceptionally designed equilibrium between fleshed-out mentorship and historical HFT knowledge delivers core comprehension of a challenging topic.