Trading Shares in Milliseconds [View all]

[MindMover]

If Manoj Narang is about to bring down the markets, he’s certainly relaxed about it. Narang, who wears a goatee and wire-frame glasses, is casually dressed in a brown shirt and dark gray sweatshirt. Sitting on a swivel chair with one leg tucked under the other, he seems positively composed, especially for a man who has just bought and sold 15 million shares with a total value of $600 million. For Narang, however, such volume represents just the start of a normal day. Though it’s about noon on a Friday morning, he has barely begun.

Narang is the head of Tradeworx, a hedge fund and financial-technology firm that makes purely automated trades; all decisions are reached and acted on at near light speed by computers running preprogrammed algorithms. “Actually, we run two businesses,” he says. “The first trades in and out of shares in about a second and holds them for an average of two or three days. That’s the medium-speed fund. The high-speed fund could make thousands of trades a second and holds them for a matter of minutes.”

By the end of the day, his computers will have bought and sold about 60 million to 80 million shares, with the heaviest activity in the last hour of trading, from three to four in the afternoon. Tradeworx and similar firms around the country will race to close billions of bets that hinge on things like tiny differences between the prices of shares in an exchange-traded fund holding the S&P 500 and the individual shares that make up the same index. The profits go to the company with the fastest hardware and the best algorithms–advantages that enable it to spot and exploit subtle market patterns ahead of everyone else. At the end of a typical day, the Tradeworx high-speed business holds no shares at all. Come Monday, Narang will look to trade millions more shares. It seems like a lot, and it is, but Narang estimates that he’s probably only somewhere in the middle of the top 50 traders by volume.

Just five years ago, automated trades made up about 30 percent of the market, and few of those moved as quickly as today’s trades do. Since then, however, automated trading has become much more widespread, and much quicker. Narang acknowledges starting his ultrafast group as a defensive maneuver when he began to notice faster traders eroding the performance of his medium-speed strategy. Now the medium-speed fund is adopting the techniques he developed in the ultrafast fund.

http://www.technologyreview.com/featuredstory/416805/trading-shares-in-milliseconds/

This is an article dated 4 years ago ... trading is now in nanoseconds .... do you really think you have a chance in these markets ...?