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Algorithmic Trading

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Algorithmic Trading Algorithmic Trading HPC & AI Reference Guide Authors Erik Vynckier Erik Vynckier is board member of Foresters Friendly Society and chair of the Institute and Faculty of Actuaries (Research and Thought Leadership Board), following a career in investment banking, insurance, asset management and the petrochemical industry. He co-founded EU initiatives on high performance computing and big data in finance and co-authored “High-Performance Computing in Finance” and “Tercentenary Essays on the Philosophy and Science of Leibniz”. Erik graduated as MBA at London Business School and as chemical engineer at Universiteit Gent. Gabriel Pirastru – Dell Technologies, HPC & AI Team John Ashely – NVIDIA FSI team Keith Manthey and Darren Miller – Dell Technologies, UDS For any enquires regarding Algorithmic Trading and Dell Technologies: [email protected] For any enquires regarding Algorithmic Trading and NVIDIA: [email protected] For any enquiries regarding Algorithmic Trading and storage solutions: [email protected] Contact your local HPC contact: • [email protected] • [email protected] • [email protected] • [email protected] Dell Technologies Useful Links: • Guides to Connected Finance • High-Performance Computing • HPC and AI Innovation Lab • Reference Architectures Contents Introduction.........................................................................................................................................................................................6 Level Setting ........................................................................................................................................................................................6 i. Why do we do algorithmic trading?.......................................................................................................................................6 ii. Pattern detection and Risk ....................................................................................................................................................6 iii. Back-testing ............................................................................................................................................................................6 iv. Short-shelf time ......................................................................................................................................................................7 v. Who is doing algorithmic trading? ........................................................................................................................................7 vi. What is the workflow of algorithmic trading? ...................................................................................................................7 vii. How big is algorithmic trading versus ‘standard’ trading? .............................................................................................8 I. Industry ............................................................................................................................................................................................9 1. Information technology as a competitive advantage in financial services .......................................................................9 2. Electronic trading, algorithmic trading and high frequency trading ................................................................................ 10 i. Electronic trading .................................................................................................................................................................. 10 ii. Algorithmic trading .............................................................................................................................................................. 10 iii. High frequency trading ....................................................................................................................................................... 10 iv. Algorithmic trading market .................................................................................................................................................11 v. Products traded in algorithmic trading ..............................................................................................................................11 vi. Characteristics of trading ...................................................................................................................................................12 vii. Characteristics of algorithmic tradings ...........................................................................................................................12 3. Strategy development process in algorithmic computing ................................................................................................13 i. Passive management ........................................................................................................................................................... 14 ii. Systematic risk ..................................................................................................................................................................... 14 iii. Active management .............................................................................................................................................................15 iv. ETFs .......................................................................................................................................................................................15 v. Arbitrage Trading ...................................................................................................................................................................15 vi. Factors to consider ..............................................................................................................................................................15 4. Markets and market structure ............................................................................................................................................... 16 i. Exchanges .............................................................................................................................................................................. 16 ii. Where futures trade ............................................................................................................................................................. 17 iii. Where Forex trade - Foreign Exchange Market .............................................................................................................. 17 iv. Where corporate bonds trade ........................................................................................................................................... 17 v. Where OTCs – over the counter - trade ............................................................................................................................ 18 vi. Repos - repurchase agreements .......................................................................................................................................19 vii. Clearing .................................................................................................................................................................................19 viii. Market rules - regulators ...................................................................................................................................................19 5. Regulations in the capital markets ....................................................................................................................................... 20 6. Financial computation ............................................................................................................................................................ 21 i. Monte Carlo simulation ........................................................................................................................................................ 21 ii. Mathematical optimisation................................................................................................................................................. 22 iii. Portfolio optimisation ......................................................................................................................................................... 22 iv. Back-testing ......................................................................................................................................................................... 23 v. Trading ................................................................................................................................................................................... 23 vi. Short Shelf Life .................................................................................................................................................................... 24 7. Trends - where’s the industry heading? ................................................................................................................................ 24 i. Artificial intelligence ............................................................................................................................................................. 24 ii. Cryptocurrency ....................................................................................................................................................................
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