Algo​/Frequency Trading

Efficient Market Hypothesis states share prices reflect all information of a given security. That’s the high-level gist of it. When looking at names like Apple, you’ve likely noticed the bid ask spread for the stock is narrow to a penny, leaving few real arbitrage opportunities available apart from uniquely placed and timed stop and limit orders depending on market direction – which could change within minutes, rendering rigorously researched strategies useless just as quickly.

Setbacks such as these can be humbling and come with the territory if you want to pursue a career in an extremely technical discipline such as High-Frequency Trading (HFT).

HFT, a well-known term that’s grown the past few decades, covers a broad set of algorithmic trading activities. The broadest understanding of the secretive subsector in the financial industry: an individual or firm executing high volumes of trades at equally low latencies – the speed at which trades can be executed, typically within fractions of a second. That speed in fact is what, for all firms in this subsector, gives someone the leading “edge” to its other competitors.

Put simply, the price on the screen is subject to change in seconds. The faster someone can capitalize on that change within milliseconds, the higher the returns that can be generated on a price change. And this is just one transaction of many that will occur throughout the trading day.

But what are the main roles you can pursue at an HFT firm? In an interview with eFinancial Careers, Evgeny Gaevoy, who spent 10 years at Optiver in Amsterdam before founding crypto market maker Wintermute in London, says there are “two core roles in HFT firms” today. That would be traders and developers. Gaevoy sites the importance of the dynamics between these roles in how they drive the success of these firms.

“Developers work on the tech stack and infrastructure [of the trading models] and are increasingly important,” while on the other side of the coin the traders “improve trading algorithms [such as adjusting risk parameters] to increase trading P&L.”

As mentioned, these firms can be highly secretive of their processes, so understanding what a day in the life can be quite tricky to specifically unearth. But keeping it simple at a high level, there are a few common elements of the day to day across these firms. Since a lot of these firms run a lot of high powered, custom hardware to execute trades, it can be a lot like flying a commercial airplane, the plane runs on autopilot, but you still need the pilot in the cockpit to make sure everything is running smoothly in case anything needs to be overridden.

For someone like a quant developer, this person would need to start their day with data maintenance to make sure the overnight data batch is correctly processed. From there, the trading and development teams work together to analyze any needed modifications for data and infrastructure related items before their core markets are open for business. You don’t just get to watch the trades be made all day;

you need to make sure your ship is flying smoothly. And those developments, big or small, can lead to improved efficiencies that help your firm generate higher returns. Regardless of where you might sit on the lucrative bonus structure, the merits of your contributions give you immense opportunity to earn big with the firm.

Sounds interesting, right? But for an outsider looking in, it still begs questions around what types of backgrounds might be required to break in. Or how to break in at all.

There is more than one way to join an HFT firm, but that doesn’t dispel any requirements of a highly technical background. Having a university background or extensive knowledge of financial markets can certainly help. But most firm’s who are seeking out talent require thorough knowledge in scientific disciplines including mathematics, physics, computer science, or engineering. Some paths, mentioned by Quant Start, in other works, can include:

• Graduate School: HFT firms pursue many candidates who are pursuing post-graduate disciplines (Master’s or PhD) as firms can understand a…