By Irene Aldridge Adapted from Aldridge, Krawciw, Real-Time Risk: What Investors Should Know About Fintech, High-Frequency Trading and Flash Crashes (Wiley, 2017) Foreign exchange market participants are increasingly concerned about the quality of their execution. Gone are the days of laid-back forex execution – the compensation of today’s forex managers is increasingly tied to their performance. Indeed, how you execute the orders in today’s markets may make or break investment profitability. Changes to the markets over the past several years, place execution quality at the top the priority list for investment managers. Most of the changes in the markets are directly related to computing powerRead More →

By Irene Aldridge Big Data techniques transform the landscape of portfolio management analytics. The classic portfolio allocation framework developed by Markowitz (1952, 1959) suggests that portfolio returns can be dramatically improved if investors distribute their holdings across many different assets and, potentially, asset classes. Markowitz portfolio allocation theory suggests that investors benefit from distributing their nest eggs among different investment baskets. Should one basket fall and the eggs contained within break, the other baskets will be unharmed. The key factors commonly considered in the Markowitz framework are the historical returns of the prospective portfolio constituents, which in turn allow for the measurement of historical varianceRead More →

By Irene Aldridge Adapted from Real-Time Risk: What Investors Should Know About Fintech, High-Frequency Trading and Flash Crashes, by Irene Aldridge and Steve Krawciw (Wiley, 2017)   Recently, a frenzy to delay orders consumed exchanges. First came IEX, whose innovation was to delay all orders by 350 microseconds. Following IEX market share gains, reported here, many venues are competing to provide a similar offering to traders. This article looks at the mechanics of the delay and how it really helps trading venues gain market share, and at whose expense. In a nutshell, execution delay can be very risky and costly to investors. In all fairness,Read More →

Interview with Prof. Marco Avellaneda of NYU Courant, world-recognized expert in Financial Mathematics, Big Data, and Volatility, Quant of the Year, Chair of Big Data Finance Conference (May 19, 2017, NYU Center for Data Science, 60 5th Ave., New York, NY). In discussion with Irene Aldridge (IA), IA: What is new in data, and Big Data in particular, in comparison with last year? MA: This year, Big Data Finance is becoming very serious. More and more financial institutions are applying Big Data Analytics and Blockchain technology in the real world of finance. The three key trends pertaining to Blockchain that we observe are: 1) theRead More →

By Irene Aldridge Recent proclamations (see Forbes, ZeroHedge and others) that high-frequency trading in equities has become too competitive and unprofitable for many firms has prompted exits and fire sales of assets.  The recent mergers and consolidations in the HFT industry are indeed real.  And as described in our new book, “Real-Time Risk: What Investors Should Know About Fintech, High-Frequency Trading and Flash Crashes” (Wiley, 2017), the technologies required to successfully trade at high frequencies have indeed become increasingly sophisticated.  However, the reports of death of HFT may be highly premature.   Our firm, AbleMarkets, tracks the participation of a specific group of high-frequency tradingRead More →

By Irene Aldridge While recent press in the U.S. (erroneously) reported the near-death of HFTs due to rising costs of fast communication and other new barriers to entry and survival and the industry, the press across the pond believes that HFTs are still taking over the U.S. markets and blames the HFTs for all the possible wrongs and evils in today’s financial markets. To wit, an article from March 17, 2017 in none other than the venerable Financial Times, held HFTs responsible for flash crashes, the disappearance of trading opportunities relating to post-earnings announcements, and the dominance of “shorter and faster trends” that preclude long-termRead More →

A recent Vanity Fair article by Bess Levin reported that when Steve Cohen, the veteran of the financial markets, reopens his hedge fund in January 2018, it will be a leader in automation.  According to Bloomberg, the fund is pursuing a project to automate trading “using analyst recommendations as an input, the effort involves examining the DNA of trades: the size of positions; the level of risk and leverage.” This is one of the latest innovations in Steve Cohen’s world, a fund manager whose previous shop, SAC in Connecticut, was one of the industry’s top performers. What enables Mr. Cohen to introduce scores of computers andRead More →