Riding the wind of rebirth

"Can we say that, except for the internal trading seats in London, New York, Tokyo, Hong Kong Island, New Town and Jakarta, we are actually the fastest here?"

"Right," Li Laosan beamed with joy, "So our system is based on market efficiency theory, technical analysis theory, statistics, risk management theory and behavioral finance. It has developed a set of software that automatically generates or executes trading investment decisions, and achieves arbitrage through multiple, large-scale automatic transactions in a short period of time."

"Is this okay?" Mai Xiaomiao asked, "If so, wouldn't this program become an amplifier like an amplifier? If market demand is the basis of transactions, then with your participation, others will have to pay a higher price to buy and a lower price to sell. Doesn't this mean that if others want to make a real deal, they have to pay you a handling fee first?"

"Yes," Zhou Zhi nodded. "The consequence of this is that the stock market will fluctuate more. When it rises, it rises higher, and when it falls, it falls deeper. Even if the system can be implemented, will there be any legal risks?"

"These are not issues for you to consider. At least there are no problems at the moment," Li Laosan patted his laptop, "Your task now is to get my system up and running."

“Have you developed them all?”

"I don't really understand it, but I brought the source code and technical files with me." Li Laosan said, "I bought it from a technology company called Baines. They said it would work."

"how much did you spend?"

"Three million pounds. It's not a purchase, but an investment acquisition. After the purchase, we changed the name to Baines Financial Technology and specialize in research in this area. The intellectual property rights are all ours."

"Let me take a look." Mai Xiaomiao immediately became interested.

“Come, come, come…” Li Laosan ran over eagerly waiting for this sentence. Now it was like hearing heavenly music, and he immediately turned the notebook over: “Feel free to look at it, feel free to modify it!”

The technical documentation was developed in accordance with ISO standards and was written in great detail. No one was too lazy to read the requirements specification and jumped directly to the technical solution proposal.

A technical solution proposal is a preparatory document that breaks down business requirements into technical implementation methods before development. By reading this, you can clearly understand the system's design ideas, programming concepts, implementation methods, and the final product.

It is equivalent to architectural drawings for real estate.

The technical implementation of this system is simple. It is to give the user and password of the trading seat to the system, so that the system can automatically log in to the financial securities trading platforms around the world that have opened satellite trading business, and realize the functions of automatic order placement and automatic delivery.

This part of the technology is not complicated and is very easy to implement. Compared with Baines' solution, the "system robot" developed by Clover itself directly makes data and port calls through the system's underlying instructions, which is much more complex and complete than Baines. Therefore, neither Mai Xiaomiao nor Zhou Zhi look down on this part of the function in the system.

The most critical core of this system is how the system analyzes the securities market through its own calculations and then automatically triggers the order function.

This involves two major aspects: one is data analysis and the other is transaction type.

The former involves many models for analyzing trading trends under various circumstances, but generally speaking, it still uses the advantage of time difference to predict trends in a timely manner, and then conduct various degrees of buying and selling.

In order to prevent his unconventional trading behavior from affecting the market, Baines designed his trading behavior to be very complicated.

For example, in order to avoid the impact of one's own orders on the market, transactions can be divided into iceberg orders, hidden orders and other orders that reduce impact, or large silent orders can be placed, or transaction execution orders such as volume-weighted average price algorithms and time-weighted average price algorithms can be compiled to hide one's own trading behavior among many transactions through price algorithms and time algorithms, avoiding temporary and sudden changes in transaction quantity and price, and making the transaction curve smooth and even. There are also some more rogue methods, such as the most common high-frequency trading in later generations.

High-frequency trading is a type of fast-execution trading. When an extremely short opportunity appears in the market, one can be informed and profited from it in the first place. The entire transaction process may only take less than one millisecond. Generally, intraday turnaround trading, arbitrage hedging trading, and mixed hedging trading are used as the means of operation.

Intraday revolving transaction is one or more transactions with opposite positions on the same security or its derivatives. Among them, for the "T+0" strategy of treasury stock, the above strategy is mainly reflected in the same stock and holding positions after the market, which is to seize the small fluctuations of the stock within a day to make a small difference.

Arbitrage trading is a rapid and concentrated hedging transaction between related products, such as ETF constituent stocks and ETFs, which takes advantage of the tiny fluctuations between the two to make small profits.

Hybrid hedging comprehensively considers stocks, margin trading and ETF redemption to buy and sell two-way positions on all targets at the same time, so as to achieve cross-product arbitrage or position adjustment.

Regardless of the means used, the purpose is to reduce market impact costs or to achieve arbitrage and hedging, which are also normal analysis and trading ideas in the securities market.

But things change when automated high-frequency trading is added.

High-frequency trading uses computer algorithms and high-speed data transmission technology to conduct rapid transactions in financial markets.

Profits are made by using electronic trading platforms and high-speed computer systems to buy and sell financial assets at microsecond speeds. The core of this is to use computer algorithms to make trading decisions and execute them at extremely high speeds; to make profits by executing a large number of transactions through rapid price fluctuations and trading opportunities in the market.

The ideal design purpose of high-frequency trading is to capture small profit margins with extremely large trading volumes. Since the trading speed is very fast, profits can accumulate into large amounts in a short period of time.

Quickly identify price discrepancies, arbitrage opportunities and liquidity needs in the market, and complete transactions almost instantly with fast execution and high automation capabilities.

This quick reaction ability allows high-frequency traders to obtain better transaction prices in the market and to quickly exit or adjust positions before prices move.

There are many ways to make money here.

For example, there is a type of transaction called liquidity rebate trading, where the exchange will pay a certain amount of rebates to traders who can provide market liquidity to encourage them to conduct more trading activities in the market.

In liquidity rebate transactions, exchanges usually divide traders into two categories: liquidity providers and liquidity takers.

Liquidity providers are traders who provide liquidity in the market through limit orders. They usually place buy and sell orders in the market and wait for other traders to take orders.

Liquidity acquirers refer to traders who obtain liquidity in the market through market orders. They usually directly take the buy and sell orders in the market.

In this trading strategy, the exchange usually pays a certain rebate to the liquidity provider and charges a certain transaction fee to the liquidity acquirer. (End of this chapter)