Search icone
Search and publish your papers

Role of high frequency trading in modern financial markets, and Volcker Rule and its impact on proprietary trading

Or download with : a doc exchange

About the author

Enterpreneur
Level
General public
Study
economics
School/University
Maseno...

About the document

Published date
Language
documents in English
Format
Word
Type
case study
Pages
8 pages
Level
General public
Accessed
0 times
Validated by
Committee Oboolo.com
0 Comment
Rate this document
  1. Overview of financial markets
  2. High Frequency Trading
    1. Characteristics of HFT
    2. Strategies employed by HFT
    3. Impacts of HFT of financial markets
  3. Volcker Rule and its impact on proprietary trading
  4. Effects of the Volcker Rule on HFT and the Global Financial Markets
  5. Conclusion

The financial markets play an important role in the financing of the real economies of the different countries of the world. It is important to note that the financial markets channel the savings as well as the investments. They also play an important role in the facilitation of the formation of the capital as well as ensuring the efficiency of the transfer and the allocation of the risks. The financial markets should be transparent, efficient, orderly and fair to allow the investors to be able to rapidly and easily determine the markets best available prices. It should also be noted that there should be fairness in the access to the markets. Moreover, liquid and deep markets usually play the role of the creation of opportunities for the different companies that are listed in the financial market to be able to raise funds (Avramovic, 2010). The markets also provide the participants with the opportunity to be able to engage in the investment and the management of the risks. The search costs, transaction costs and asymmetries in the information are greatly reduced in the financial markets that are efficient as the presence of the above in the financial market will lead to participant's reluctance and the loss of confidence in the financial market.

There is always a great fear whenever there is a lack of information that is created in the market especially when the other party who is involved in the trading has massive or superior information or is focused on manipulating the financial market. It is important to note that in the last few decades, the financial markets have adopted great levels of automation especially in the trading of the securities. In the past, many financial markets adopted the electronic order book as the main market model for their functionality while significantly abandoning the floor trading that is human intermediated.

[...] Impacts of HFT of financial markets It is important to note from the outset that due to the recent nature of the development on the area of HFT, there is a significant scarcity of the data on the concept due to the limitations in the availability of the datasets that are appropriate as well as the theoretical and empirical difficulties that are raised by the concept (Brogaard, 2012). The impacts will be discussed under number of sub-headings. Effects on the liquidity The liquidity is a very important measure or indicator of the quality of the financial market. [...]


[...] It is important to note that in the last few decades, the financial markets have adopted great levels of automation especially in the trading of the securities. In the past, many financial markets adopted the electronic order book as the main market model for their functionality while significantly abandoning the floor trading that is human intermediated. The above changes have been brought about by the advances in the communication technology, the computing power and the improvements in the capabilities of programming have all played a part as they can be used in the development of new tools that can be used in the decision making in the investment, execution of trade, as well as the risk management. [...]


[...] The technology can be traced to 2000 when the automation of the financial markets had begun to gather steam. The HFT is currently a very significant element of the financial markets. The emergence of the HFT is attributed to the low latency access to the market and the improvement of the technology (Avramovic, 2010). The above development is also attributed to the reforms that have been extensively undertaken in the area of the regulatory frameworks in the financial markets so that the levels of completion in the trading services could be promoted. [...]


[...] Financial Times Press Avramovic, A. (2010). Sizing up US equity microstructure. Credit Suisse: AES Analysis. Biais, B. & Woolley, P (2011). High Frequency Trading. Working Paper Toulouse School of Economics. [...]


[...] Here, majority of the equity products in the US underwent a significant and extraordinary decline and recovery. The major indices of equity on the securities and the futures markets plummeted by between 5 and 6 per cent in a few minutes and then rebounded in a matter of minutes. It is important to note that some of the equities in the market experienced even worse price movements. It is important to note that more than 300 securities and over 20,000 trades were executed at prices above 60 per cent away from their values a few minutes before. [...]

Top sold for finance

Yale University Investments Office: August 2006 case analysis

 Economics & finance   |  Finance   |  Case study   |  08/17/2009   |   .doc   |   8 pages

International finance distribution of currency of AUD and USD

 Economics & finance   |  Finance   |  Worksheets   |  08/05/2017   |   .doc   |   4 pages

Recent documents in finance category

International finance distribution of currency of AUD and USD

 Economics & finance   |  Finance   |  Worksheets   |  08/05/2017   |   .doc   |   4 pages

The O.M. Scott & Sons Company - Financial analysis

 Economics & finance   |  Finance   |  Case study   |  11/22/2016   |   .doc   |   12 pages